Legislature(2007 - 2008)
04/24/2007 02:11 PM House RES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 24, 2007
2:11 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki
MEMBERS ABSENT
Representative Vic Kohring
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."
- MOVED CSHB 177(RES) OUT OF COMMITTEE
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) Heard & Held
03/24/07 (H) MINUTE(O&G)
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
03/27/07 (H) Heard & Held
03/27/07 (H) MINUTE(O&G)
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
04/10/07 (H) Heard & Held
04/10/07 (H) MINUTE(RES)
04/11/07 (H) RES AT 1:00 PM BARNES 124
04/11/07 (H) Heard & Held
04/11/07 (H) MINUTE(RES)
04/12/07 (H) RES AT 1:00 PM BARNES 124
04/12/07 (H) Heard & Held
04/12/07 (H) MINUTE(RES)
04/13/07 (H) RES AT 1:00 PM BARNES 124
04/13/07 (H) Heard & Held
04/13/07 (H) MINUTE(RES)
04/14/07 (H) RES AT 1:00 PM BARNES 124
04/14/07 (H) Heard & Held
04/14/07 (H) MINUTE(RES)
04/16/07 (H) RES AT 1:00 PM BARNES 124
04/16/07 (H) Heard & Held
04/16/07 (H) MINUTE(RES)
04/17/07 (H) RES AT 1:00 PM BARNES 124
04/17/07 (H) Heard & Held
04/17/07 (H) MINUTE(RES)
04/18/07 (H) RES AT 1:00 PM BARNES 124
04/18/07 (H) Heard & Held
04/18/07 (H) MINUTE(RES)
04/19/07 (H) RES AT 1:00 PM BARNES 124
04/19/07 (H) Heard & Held
04/19/07 (H) MINUTE(RES)
04/20/07 (H) RES AT 1:00 PM BARNES 124
04/20/07 (H) Heard & Held
04/20/07 (H) MINUTE(RES)
04/21/07 (H) RES AT 1:00 PM BARNES 124
04/21/07 (H) Heard & Held
04/21/07 (H) MINUTE(RES)
04/23/07 (H) RES AT 1:00 PM BARNES 124
04/23/07 (H) Heard & Held
04/23/07 (H) MINUTE(RES)
04/24/07 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
MARCIA DAVIS, Deputy Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During hearing on HB 177, answered
questions and presented a step-by-step comparison of the
proposed CS for HB 177, Version K, to CSHB 177(O&G), including
references to the Senate's version of the Alaska Gasline
Inducement Act.
ANTONY SCOTT, Commercial Analyst
Commercial Section
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 177, answered
questions regarding the Alaska Gasline Inducement Act.
PATRICK GALVIN, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During hearing on HB 177, answered
questions and presented information regarding the various House
and Senate versions of the Alaska Gasline Inducement Act.
JOE BALASH, Special Staff Assistant
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: During hearing on HB 177, answered
questions.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 2:11:29 PM. Representatives
Gatto, Johnson, Wilson, Seaton, Roses, Guttenberg, Edgmon, and
Kawasaki were present at the call to order.
HB 177 - NATURAL GAS PIPELINE PROJECT
[Contains discussion of SB 104, companion bill to HB 177.]
2:11:41 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." [Before the committee was
CSHB 177(O&G).]
2:11:51 PM
CO-CHAIR JOHNSON moved to adopt the proposed committee
substitute (CS) for HB 177, Version 25-GH1060\K, Bullock,
4/24/07, as the work draft. There being no objection, Version K
was before the committee.
CO-CHAIR GATTO explained that Version K incorporates the
committee members' amendments to CSHB 177(O&G) that were adopted
on 4/23/07, as well as certain of the [administration's]
suggested amendments that were deferred because of the
difficulty in deciphering them separately. He stated that
Marcia Davis will review Version K for the committee and explain
the substantive changes.
2:13:31 PM
MARCIA DAVIS, Deputy Commissioner, Department of Revenue (DOR),
explained that many of the administration's suggested changes
were intended to make the House and Senate versions of the bill
more similar, minus key policy or substantive differences. She
relayed that the drafter favors the language in the House
version of the bill, and that he did not automatically
incorporate each of the administration's suggested amendments
into Version K.
MS. DAVIS then explained that the title of Version K no longer
contains the clause, "establishing the gas utility revolving
loan fund;".
[Following was a brief discussion regarding how the committee
would be proceeding.]
2:18:38 PM
CO-CHAIR JOHNSON moved to adopt a proposed amendment as follows:
Page 1, line 4, after "coordinator;"
Insert "establishing the gas utility revolving loan
fund;"
CO-CHAIR GATTO objected.
CO-CHAIR JOHNSON argued that it is appropriate to leave the gas
utility revolving loan fund in the bill.
MS. DAVIS, in response to a question, said that the gas utility
revolving loan fund is addressed in CSHB 177(O&G), from page 28,
line 28, to page 30, line 15.
REPRESENTATIVE KAWASAKI, in response to a further question,
explained that the gas utility revolving loan fund was an
amendment added in the House Special Committee on Oil and Gas
and that the fund would fall under the Alaska Energy Authority.
CO-CHAIR GATTO said that he disagrees with Co-Chair Johnson's
proposed amendment because the Alaska Gasline Inducement Act
should remain solely that; the concept of a revolving loan fund
could instead be offered by someone as a separate bill.
REPRESENTATIVE SEATON concurred.
REPRESENTATIVE GUTTENBERG said he opposes the proposed amendment
because he is looking for a way to draw people back to the
table, after the Alaska Gasline Inducement Act (AGIA) passes,
for the purpose of creating an opportunity for Alaskans to
benefit from the gas line.
CO-CHAIR GATTO maintained his objection.
REPRESENTATIVE EDGMON concurred that the subject should be
addressed via a stand-alone piece of legislation, adding that he
would be interested in looking at such legislation in the
future.
CO-CHAIR JOHNSON withdrew his proposed amendment.
2:25:31 PM
MS. DAVIS explained that proposed AS 43.90.100 - found on page 2
now contains a new subsection (b) which states, "(b) Nothing in
this chapter precludes a person from pursing a gas pipeline
project independently from this chapter."; and that proposed AS
43.90.110(a)(1) - found on page 2 - now contains the clause,
"the payment period may be extended under an amendment or
modification under AS 43.90.210;". In response to questions,
she relayed that proposed AS 43.90.210 is located on page 15,
lines 19-29, of Version K. Under that provision, she said,
there are now three situations in which a project plan can be
modified: it improves the net present value (NPV) of the
project to the state; it is necessary because of an order issued
by the Alaska Oil and Gas Conservation Commission (AOGCC); or
the change is needed because of changed circumstances outside
the licensee's control and not reasonably foreseeable.
2:27:55 PM
MS. DAVIS then drew attention to language on page 3, line 5,
"certificate of public convenience", and requested that the
words, "or amended certificate" be inserted between
"certificate" and "of". This way, she said, [a particular cost]
could be considered a qualified expenditure should TransCanada
Pipeline Limited be a successful applicant. She explained that
[the existing] language occurs in three places in the bill and
that the additional language was added in the other two places,
but was inadvertently overlooked here. She said it is language
that was recommended by the administration.
REPRESENTATIVE SEATON moved to adopt [Amendment 18] as follows:
Page 3, line 5, after "certificate"
Insert "or amended certificate"
There being no objection, [Amendment 18] was adopted.
2:29:25 PM
MS. DAVIS turned attention to paragraph (3) on page 3, lines 13-
15. She said this relates to the benefits of a qualified job
training program and is the third inducement to a pipeline
applicant. However, she explained, this particular section was
removed in the Senate version of the bill because the state did
not want it to be construed that job trainees can only work on
the AGIA pipeline and not any other pipeline. The
administration recommends deletion of this particular section,
she said. Language regarding the job training program -
proposed AS 43.90.470 - is located on page 28, lines 8-11, of
Version K.
REPRESENTATIVE SEATON moved [Amendment 19] as follows:
Page 3, lines 13-15
Delete all of paragraph (3)
There being no objection, [Amendment 19] was adopted.
2:31:49 PM
MS. DAVIS then relayed that the substantive change to proposed
AS 43.90.120 was the deletion of the clause: ", 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". She
pointed out that proposed AS 43.90.130(2) now contains - on page
4, lines 1-3 - the words: "which may include multiple design
proposals, including different proposals for pipe diameter, wall
thickness, and transportation capacity, and which shall
include". Furthermore, subparagraph (A), via the deletion of
the words, ", which may not be the route described in AS
38.35.017(b)", no longer disallows an "over-the-top route" for
the pipeline.
CO-CHAIR GATTO indicated that the latter change is of concern
because although an "over-the-top" pipeline route is currently
prohibited by federal law, that could change.
REPRESENTATIVE SEATON moved Amendment 20, which read [original
punctuation provided]:
Page 4, line 4: After "pipeline"
Insert ",which may not be the route described in
AS 38.35.017(b)"
There being no objection, Amendment 20 was adopted.
2:35:13 PM
MS. DAVIS mentioned that proposed AS 43.90.130(2)(B) requires
applicants to provide the location of receipt and delivery
points, and their size and design capacity, except that this
information is not required for in-state delivery points. The
reason for this exception, she explained, is that the five
"offtakes" will be difficult to identify with any degree of
specificity because negotiations in this regard will not have
occurred prior to the filing of applications. However, it was
later realized that an application for an in-state pipeline may
be received wherein the applicant's in-state delivery points are
known and quantifiable, and so the state would want to look at
that in the application. The Senate bill currently provides for
this scenario by including a clause that states, "unless the
application proposes specific in-state delivery points". Ms.
Davis proposed the addition of this clause to the House version
of the bill.
2:38:06 PM
REPRESENTATIVE GUTTENBERG moved Amendment 21 as follows:
page 4, line 8, after "points"
insert: "unless the application proposes specific in-
state delivery points"
There being no objection, Amendment 21 was adopted.
2:38:45 PM
MS. DAVIS noted that proposed AS 43.90.130(2)(D) now also
contain the language, ", implementing practices for controlling
carbon emissions from natural gas systems as established by the
United States Environmental Protection Agency". Furthermore,
proposed AS 43.90.130(2)(D)(ii) no longer contains the words:
"pipeline route, system, and capacity proposed to bring North
Slope gas to tidewater, including a description of". She said
this wording was removed because it was duplicative of the
pipeline route requirements outlined within subparagraphs (A),
(B), and (C).
2:40:02 PM
REPRESENTATIVE SEATON voiced his concern that there is nothing
that specifically requires the pipeline section tariffs and
rates to be outlined.
REPRESENTATIVE SEATON moved Conceptual Amendment 22, which read
[original punctuation provided]:
Page 4, line 28, after "gas,"
Insert "a detailed description of all pipeline
access and tariff terms that the applicant would
propose to offer,"
MS. DAVIS suggested that the amendment instead be inserted under
subparagraph (C) after the word "project" on line 10. This
would best address Representative Seaton's concern of ensuring
that all projects are captured, she advised, because sub-
subparagraph (ii) could be interpreted as being only a project
that goes into or through Canada, as well as only a liquefied
natural gas (LNG) project, and sub-subparagraph (i) would be
only a Canadian "through-put project." She said that there
could conceivably be another project that might not be covered
under either sub-subparagraph.
[This suggestion was treated and adopted as an amendment to
Conceptual Amendment 22.]
REPRESENTATIVE ROSES pointed out that similar language is
already located on page 4, lines 24-26, and suggested that this
duplicative language should be deleted from that location.
[This suggestion was treated and adopted as a further amendment
to Conceptual Amendment 22, as amended.]
CO-CHAIR GATTO asked whether there were any objections to
Conceptual Amendment 22, as amended. There being none,
Conceptual Amendment 22, as amended, was adopted.
2:45:57 PM
MS. DAVIS explained that the language, "for the transportation
of liquefied natural gas in interstate commerce if United States
markets are proposed" - found on page 5, lines 11-12, in
proposed AS 43.90.130(2)(D)(ii) - was added for clarity
regarding the jurisdiction of the Federal Energy Regulatory
Commission (FERC) in LNG situations.
CO-CHAIR JOHNSON inquired as to which agency, the Regulatory
Commission of Alaska (RCA) or the FERC, would have jurisdiction
if the pipeline traverse an all-Alaska route and the gas is
exported to a foreign country.
MS. DAVIS said she believed there was testimony from the FERC to
one of the committees that it would be the agency having
jurisdiction over the LNG portion.
REPRESENTATIVE GUTTENBERG asked if this means that someone who
brings and sells gas to an LNG plant in Valdez is regulated
under the FERC if the LNG plant then sells it elsewhere in the
[United States] market.
MS. DAVIS explained that "foreign" commerce is not within the
purview of the FERC, but "interstate" commerce is. She said
that the qualification of "interstate commerce" for
transportation of LNG is the basic premise of FERC jurisdiction.
REPRESENTATIVE GUTTENBERG asked if this would still be the case
if someone sells the gas in-state to somebody else.
CO-CHAIR GATTO surmised that any oil, for example, taken out of
the pipeline and used in-state is regulated by the RCA, and that
any oil put onboard a tanker is regulated by the FERC.
REPRESENTATIVE SEATON argued that that is only correct if the
gas on the tanker goes to the United States and not overseas.
CO-CHAIR GATTO clarified that he was referring to oil.
REPRESENTATIVE GUTTENBERG surmised that one reason why the oil
might be considered "interstate" is that it is vertically
integrated with the shippers, so it is all basically one process
to get it to the West Coast, and so the FERC clearly covers
that.
REPRESENTATIVE SEATON stated that there are export controls on
oil, not on natural gas. According to previous testimony, he
said, the control on natural gas applies if someone uses the $18
billion loan guarantee, and that that is when it needs to be in
the United States; however, if the $18 billion loan guarantee is
not used, then the gas could be exported to some other market.
MS. DAVIS, in response to a question, said that the Kenai LNG
plant is under FERC jurisdiction and that there are limitations
on what can and cannot be exported. She offered her belief that
there is extensive control on LNG export through the FERC.
2:50:31 PM
REPRESENTATIVE WILSON moved Amendment 23 as follows:
Page 5, line 12, after "commerce"
Delete "if United States markets are proposed"
MS. DAVIS explained that that language clarifies when the
provision would apply.
REPRESENTATIVE WILSON withdrew Amendment 23.
MS. DAVIS remarked that she is not a FERC expert and so is
hesitant to say that something is necessary when the experts
have proposed certain language. She then noted that proposed AS
43.90.130(3)(B)-(C) - located on page 5, lines 20-27 - are the
two sections that require the applicant to initiate action with
the FERC regarding the certificate or amended certificate.
2:52:56 PM
MS. DAVIS referred to proposed AS 43.90.130(7) - located on page
6, line 22, through page 8, line 8 - and said that extensive
revisions and additions were made to these provisions.
Paragraph (7) pertains to the commitment by the applicant to
propose and support the handling of expansion costs in front of
FERC, she explained.
CO-CHAIR GATTO commented that the important words in those
provisions are "expansions", "rolled-in rates", and
"incremental".
MS. DAVIS pointed out that one key change was intended to ensure
that "expansion cost" included "fuel cost", and that another key
change was dividing the cap on the maximum recourse rate into
three categories. Regarding the use of "115" percent in sub-
subparagraph (iii) versus the use of "15" percent in sub-
subparagraphs (i) and (ii), she explained that it involves the
way 115 percent works with the weighted average.
CO-CHAIR GATTO commented that the committee can live with the
percentages as they are because it is just a question about
continuity. Since it involves a volume weighted average of all
rates collected, it seems like it is a mathematical expression
that demands a total rather than a percent above, he surmised.
The House Resources Standing Committee was recessed at 2:57 p.m.
to a call of the chair.
CO-CHAIR GATTO called the meeting back to order at 5:36 p.m.
Present at the call back to order were Representatives Gatto,
Johnson, Wilson, Roses, Seaton, Edgmon, and Guttenberg.
REPRESENTATIVE ROSES, in response to a comment, suggested that
there is no need to change the percentages outlined in sub-
subparagraphs (i)-(iii) of proposed AS 43.90.130(7)(B) because
both percentages mean the same thing. The reason that they are
using 115 percent of the volume-weighted average, he surmised,
is because there is a mathematical formula by which one weights
something, he said, and opined that it makes no difference which
percentages are used, the result is the same.
5:40:01 PM
ANTONY SCOTT, Commercial Analyst, Commercial Section, Central
Office, Division of Oil & Gas, Department of Natural Resources
(DNR), referred to the questions raised earlier about the
language on page 5, lines 11-12 - which states, "for the
transportation of liquefied natural gas in interstate commerce
if United States markets are proposed" - and explained that gas
which moves in interstate commerce is "economically" regulated
by the FERC. He gave a hypothetical example of a project that
transports gas by pipeline to Valdez where it is liquefied, put
on tankers, and then shipped to Mexico. He said that such a
project would almost certainly be "economically" regulated by
the FERC because, at the end of the day, that gas is involved in
interstate commerce - it would flow northwards into North
America.
MR. SCOTT then gave a second hypothetical example of gas being
liquefied at Valdez and shipped to Japan. That project, he
advised, would require an export license from the U.S.
Department of Energy (DOE), but it would not be "economically"
regulated by the DOE. In this case, the pipeline itself would
be "economically" regulated by the RCA. However, he said he did
not think that the RCA has jurisdiction over rates for tankers,
given provisions of the state pipeline Act, and added that
liquefaction facilities raise a new question. He said the RCA
does not regulate the receiving terminal in Cook Inlet because
it is not an "economically" regulated facility. He defined
"economic" regulation as meaning that the rates charged are
subject to regulatory approval.
CO-CHAIR JOHNSON referred to previous discussions about vouchers
and someone buying gas at the wellhead and transferring it down
the gas line. He inquired whether it would be possible for
someone to purchase gas at Valdez and then do what they want
with it.
MR. SCOTT replied yes.
CO-CHAIR JOHNSON asked who would regulate that.
MR. SCOTT responded that it depends. He reiterated that the
pipeline would be "economically" regulated by the FERC if the
gas was purchased in Valdez, tankered out, and then eventually
transported into North American markets.
CO-CHAIR JOHNSON asked if North America also means Canada and
Mexico.
MR. SCOTT answered yes. He explained that it is an inter-
connected grid and that he thinks the FERC's position would be
that once molecules hit that inter-connected grid, they flow on
interstate commerce. He pointed out that on the TAPS, the RCA
has jurisdiction for "intra"-state movements of oil. However,
on a gas pipeline, moving even a single molecule of gas in
"inter"-state commerce makes the whole facility entirely FERC
regulated. He advised that the FERC's regulatory jurisdiction
preempts the state's economic regulatory jurisdiction; so, in
this case, the RCA would essentially have no regulatory role to
play.
5:44:17 PM
PATRICK GALVIN, Commissioner, Department of Revenue (DOR),
informed the committee that the regulation of LNG is just
developing in the U.S. and is therefore in a transition mode.
One of the advantages of LNG, he said, is that once it is on a
tanker leaving Valdez, it can go anywhere that the shipper
wants. However, there are some unknowns. If, for example, a
project's initial plan is to export gas to the Asian market, it
will receive a DOE export license and the primary regulator of
the pipeline will be the RCA. Should there be a change in the
market at a later date which results in the project's tankers
instead sailing to the West Coast of the U.S., it is currently
unknown whether the FERC would preempt the RCA's regulatory
control of the pipeline. He relayed that at this time even the
FERC cannot say what it will do. Therefore, the state is trying
to capture both scenarios in the bill because an applicant's
project will have to be for one or the other at the time of
application. The regulatory agencies will then need to
determine their respective authorities, he said.
COMMISSIONER GALVIN, in response to a question, said the state
cannot address this issue because it is basically a question of
whether the FERC is going to exercise jurisdiction or not.
Federal authority would theoretically preempt the state unless
the federal agency is deemed to have exceeded its federal
constitutional interstate authority. What the state can do
within the context of the bill is to require the licensee to do
certain things in exchange for values received from the state.
Those things are tied to the licensee's certificate, either from
the FERC or from the RCA. The licensee will determine which it
will seek based upon its initial project design. The state does
not control, nor could it try to control, which agency is
ultimately going to regulate the project. However, he added,
that is not the issue being addressed in the bill; instead the
issue is that the licensee must seek control from one or the
other and the state must have the controls in place for
requiring the licensee do so in a timely manner.
CO-CHAIR JOHNSON asked whether the licensee needs to seek
control from both if it is an all-Alaska pipeline, given that it
is uncertain where the market is going to be.
COMMISSIONER GALVIN responded that the licensee will submit a
project design based on the market that it plans to target and
so what the chosen market is will determine whether the FERC has
jurisdiction. He acknowledged that there is a potential for
"gaming" the regulatory program by submitting an export project
and then switching later. However, he said, such a tactic would
entail going through a huge regulatory hurdle just as the
project is about to get to market and after the licensee has
already invested a lot of money.
REPRESENTATIVE WILSON surmised that proposed AS 43.90.130(3)
outlines what an applicant must do if he/she is going to be
regulated by the FERC, and that proposed AS 43.90.130(4)
outlines what the applicant must do if he/she is going to be
regulated by the RCA.
COMMISSIONER GALVIN concurred.
REPRESENTATIVE ROSES returned attention to the percentages
outlined in proposed AS 43.90.130(7)(B), and opined that they
cannot be changed because the 15 percent relates to the rate
increase and the 115 percent relates to the capacity.
5:50:34 PM
MS. DAVIS drew attention to proposed AS 43.90.130(15), and
explained that the substantive changes in [subparagraphs (A)-
(D)] add more details regarding an Alaska hire commitment, using
Alaska businesses, establishing or using in-state hiring
facilities, and the Department of Labor and Workforce
Development (DLWD) program. There have also been additions to
proposed AS 43.90.130(17) regarding a project labor agreement
(PLA), she said.
5:51:39 PM
REPRESENTATIVE SEATON moved Conceptual Amendment 24, which read
[original punctuation provided]:
Page 9, line 16 After "use,"
Insert "for jobs not filled under subsection
(17)"
CO-CHAIR GATTO objected, saying he had other questions about
paragraph (17).
REPRESENTATIVE SEATON explained that Conceptual Amendment 24
establishes the PLA as the default. For any jobs not filled
under the PLA, he said, then the term, "as far as practicable"
in paragraph (15)(D) will apply to the job centers and
associated services of the DLWD. He said that during public
testimony it was pointed out that under the current language a
job applicant does not have to be a state resident at the time
of application and will be treated the same as someone who has
been here for 30 days. [Conceptual Amendment 24], he indicated,
would allow paragraph (17) to supersede paragraph (15).
5:53:57 PM
REPRESENTATIVE ROSES asked for clarification regarding the
intent of Conceptual Amendment 24. He presented an example of a
pipe fitter's union member in the Lower 48. He said the union
member, by virtue of belonging to an affiliate of the national
pipe fitter's union, can pick up his or her book and bring it to
an [Alaska] union and be preferentially hired over somebody who
has been in the state for 30 days. That person will be
considered a member of that particular [Alaska] local the minute
his or her book is entered into the ledgers at that union hall,
he said.
REPRESENTATIVE SEATON said that his understanding from public
testimony is that the priority of the PLA terms is that a worker
must be a one-year resident. To have priority under the PLA, a
worker must be a resident at the time of application.
CO-CHAIR JOHNSON said he thought that that was partially
accurate. From his conversations with union members, he said he
thought the one-year residency requirement varied between
unions. He said his understanding is that if a person signs up
from out of state and then all of the people on the list ahead
of him or her are hired, that person will be next on the list
regardless of whether he/she has been in the state a year or 30
days, as long as he/she brings his/her book.
REPRESENTATIVE GUTTENBERG offered his understanding regarding a
qualified pipe welder; [the union] would first go through all
the current members who are residents. Then, after that list is
exhausted, a qualified welder who is a resident would be at the
top of the list even if he/she is not a member of the union.
CO-CHAIR GATTO surmised that a nonresident could be hired even
if he/she has been in the state one day provided that everyone
on the list ahead of him/her has been hired.
REPRESENTATIVE GUTTENBERG concurred.
CO-CHAIR GATTO then directed attention to the language in
proposed AS 43.90.130(17), "by qualified residents of the
state", and asked how this requirement would be satisfied if
there is a licensed person who has been in the state only one
day.
REPRESENTATIVE GUTTENBERG replied that the state cannot
differentiate; that is why project labor agreements are being
set up.
5:57:50 PM
JOE BALASH, Special Staff Assistant, Office of the Governor,
relayed that the commissioner of the DLWD does not oppose
Conceptual Amendment 24. He said the use of DLWD job centers
and an Internet-based labor exchange system will be a function
of the terms of the PLA contract between the parties.
Negotiations between the licensee and labor representatives will
determine whether there is one mega-PLA or a series of PLAs with
the different trades and crafts. "We do not want to see a
tension, which I think is what Representative Seaton is
concerned about, between the use of the job centers and any PLA
that might be entered into," said Mr. Balash. He said his
understanding is that the job centers can be used as referrals
through a union hall if the PLA requires that all the jobs be
filled through the halls. He relayed that the commissioner
checked with staff to make sure that this amendment would work.
CO-CHAIR JOHNSON asked whether the commissioner has a problem
with leaving the language of proposed AS 43.90.130(15)(D) the
way it is.
MR. BALASH replied that he did not know.
CO-CHAIR JOHNSON inquired whether the administration favors the
current language of proposed AS 43.90.130(15)(D).
MS. DAVIS answered yes, and pointed out that the language of
paragraphs (15) and (17) was submitted by the administration.
In response to a question, she relayed that in discussions with
the commissioner of the DLWD and others, she learned that the
aspiration of having only Alaskans work on the gas line is
actually not desirable. The lesson learned from the workforce
buildup for the Trans-Alaska Pipeline System (TAPS) was to
develop a core of resident, skilled, craft laborers who will
have sustained employment over the course of the construction as
well as the expansions and the process, and the peaks are
staffed with nonresident laborers. This way, she said, resident
laborers are not put in the situation of a brief moment of great
hire that is suddenly followed by no work and then being forced
to leave the state to pursue their livelihoods. Therefore, a
good workforce plan actually envisions a component of out-of-
state hire along with an in-state hire component in order to
manage economic stability for Alaskans.
REPRESENTATIVE WILSON surmised that what is being said is that
only as many Alaskans as there are permanent jobs will be hired
and the rest will not get any jobs.
MR. BALASH responded, "Speaking for the governor - 'No!'"
MS. DAVIS clarified that the goal is to employ every Alaskan who
wants a job, but that there cannot be a commitment that every
one of the jobs filled by an Alaskan will be a life-long job.
REPRESENTATIVE WILSON posited that there are numerous Alaskans
who will only want the shorter term jobs so that they can make
their money and then return to their homes.
6:03:48 PM
REPRESENTATIVE SEATON opined that there was no coordination
between the PLA and the expansion to use job centers. The
intent of Conceptual Amendment 24 is to coordinate the
provisions of paragraphs (15) and (17). It would make the PLA,
which everyone agrees is necessary for a mega-project, the
overriding thing to ensure that the jobs go to qualified
residents of the state. If the jobs are not filled this way,
then hiring will go through the DLWD "as far as practicable".
REPRESENTATIVE EDGMON relayed that he went to one of the PLA
presentations and got the impression that positions in
engineering and management would not necessarily be the function
of the PLA. If that is true, then Representative Seaton's
proposed language simply clarifies the clause "as far as
practicable".
CO-CHAIR GATTO withdrew his objection.
CO-CHAIR JOHNSON objected. He inquired whether a Canadian
member of the union is protected by the North American Free
Trade Agreement (NAFTA) and given somewhat of a resident status.
COMMISSIONER GALVIN replied that he did not have an answer, but
would research that issue further. He stated that the language
under paragraph (15)(D), "use, as far as practicable," is
conditional, and the language under paragraph (17), "commit to
negotiate ... a project labor agreement" is mandated. Adding
the amended language, he opined, takes the job centers out of
being potentially used with the PLAs. He said he believes that
a PLA can be crafted to include a provision, and [the
administration] would support this, that the job centers be used
as much as practicable. He relayed that although the
commissioner of the DLWD said Conceptual Amendment 24 is okay,
the current language is also fine.
COMMISSIONER GALVIN stated that he believes Conceptual Amendment
24 would make PLAs and job centers exclusive of each other even
though that is not necessarily the intent. He said it is [the
administration's] intent that the PLA requirement is number one
and the job center requirement is supplemental, and so that is
why "as far as practicable" has been set as a limitation.
REPRESENTATIVE ROSES expressed his concern with tying the two
together and said he thinks they need to stand alone. He
reported from personal experience that when a union has placed
all of its in-state workers on jobs, it will reach out to the
unions in other states. He said that he does not want a union
member from the Lower 48 to have priority over a non-union
Alaskan, and expressed his fear that [Conceptual Amendment 24]
might possibly allow this to happen.
6:12:08 PM
A roll call vote was taken. Representatives Seaton and Edgmon
voted in favor of Conceptual Amendment 24. Representatives
Wilson, Roses, Kawasaki, Guttenberg, Johnson, and Gatto voted
against it. Therefore, Conceptual Amendment 24 failed by a vote
of 2-6.
MS. DAVIS turned attention to proposed AS 43.90.130(19), and
noted that it no longer contains the words: "; the affiliates
of the applicant; all partners, members of a joint venture,".
She then directed attention to proposed AS 43.90.150(c), and
noted that a question has arisen regarding to whether this
subsection is needed given that the applicant's ability to
challenge an award has been eliminated.
6:14:05 PM
REPRESENTATIVE SEATON offered Amendment 25, which read [original
punctuation provided]:
Page 11, lines 2 - 5
Delete subsection (c)
REPRESENTATIVE WILSON objected and asked Commissioner Galvin to
reiterate what he said about this subsection the previous day.
COMMISSIONER GALVIN stated that the language in subsection (c)
is moot given that the ability to challenge has been eliminated.
An area of concern, however, is whether, during the legislative
approval phase, an unsuccessful applicant lobbies to have the
successful application rejected. He said it doesn't seem fair
that the unsuccessful applicant's confidential information does
not have to disclosed as is the case for the successful
applicant. But, he said, he could not think of a way to address
this problem. In response to a question from Co-Chair Gatto,
Commissioner Galvin stated that he agrees with Amendment 25.
REPRESENTATIVE GUTTENBERG opined that if someone was challenging
the successful applicant, their confidential information should
also be made available as a matter of public policy.
COMMISSIONER GALVIN responded that Representative Guttenberg is
correct and this is why subsection (c) was added in the first
place. However, language was added to a separate provision
which says that in order to apply, an applicant must commit not
to challenge; therefore subsection (c) is no longer relevant.
He said a lobbying effort is not a legal challenge and cannot be
regulated, therefore it will be incumbent upon the legislators
being lobbied to ask for that confidential information.
CO-CHAIR JOHNSON inquired as to what the "hammer" is for keeping
unsuccessful applicants from challenging.
MS. DAVIS replied that one of the criteria in the application is
that the applicants agree to waive their right to contest or
challenge. Thus, submission of an application is akin to a
contractual provision.
CO-CHAIR GATTO surmised that this is why subsection (c) is
superfluous.
MS. DAVIS concurred.
REPRESENTATIVE WILSON withdrew her objection.
CO-CHAIR GATTO asked whether there were any further objections.
There being none, Amendment 25 was adopted.
6:19:15 PM
MS. DAVIS turned attention to proposed AS 43.90.170(a), which
now contains the clause "consider public comments received under
AS 43.90.160(a)," thereby making it explicit, rather than
implicit, that the commissioners shall consider public comment.
REPRESENTATIVE GUTTENBERG asked whether anything was changed in
proposed AS 43.90.160(c).
COMMISSIONER GALVIN instead explained that through [the
applicants'] signing of the confidentiality agreements, access
is granted to the legislative auditor, the fiscal analyst who
serves as head of the legislative finance division, agents and
contractors of the legislative auditor and the fiscal analyst,
and members of the legislature. It is the administration's
interpretation that this provision also applies to the
applications that are rejected by the commissioners. Therefore,
he said, the confidential information included in the
applications would also be available through the confidentiality
agreements to the legislature when this process moves on to the
legislative round. In response to a statement by Co-Chair
Gatto, Commissioner Galvin agreed that nothing in subsection (c)
allows confidential information to be released to the public.
REPRESENTATIVE SEATON referred to proposed AS 43.90.150(b), and
asked why the commissioners would be required to return
information that is not proprietary or a trade secret.
COMMISSIONER GALVIN explained that if an applicant submits
information that he/she claims is a trade secret but the
commissioners disagree, the applicant will be given the
opportunity to decide whether to keep this information in its
application for consideration by the commissioners. Information
that is deemed nonconfidential, but still a part of the
application, will be released as public information. Therefore,
this provision allows the applicant to request that the
information be returned and not be considered as part of its
proposal.
6:23:09 PM
MS. DAVIS then pointed out that a conforming change to make
Version K similar to the Senate version of the bill now has
proposed AS 43.90.170(b) providing discount rates of two, six,
and eight percent.
REPRESENTATIVE SEATON said he thought he heard in earlier
testimony that "five" was the percentage used in previous
analyses and that "five" was inserted so that there could be a
comparison between previous analyses.
MS. DAVIS concurred, and said the DNR runs its analyses using
models built around five percent, but the Senate said it would
like models using six percent to be run as well.
COMMISSIONER GALVIN stated that previous economic reports done
on the "stranded gas contract" ran the number at six percent.
He relayed that the administration prefers five percent because
it is the number that the administration provided in its slides
and it is the number recommended as the appropriate discount
rate from a governmental standpoint for looking at cash flows.
While the administration recognizes that there may be a desire
to have additional percentages thrown in and will look at
running those additional numbers, he opined that five percent is
the appropriate rate.
CO-CHAIR GATTO commented that five percent makes for a nice
linear comparison.
6:25:49 PM
REPRESENTATIVE SEATON moved Amendment 26 as follows:
Page 12, line 6
Delete "six"
Insert "five"
There being no objection, Amendment 26 was adopted.
REPRESENTATIVE GUTTENBERG stated that if there is a conference
committee, both bodies will have a chance to debate this number.
6:26:53 PM
MS. DAVIS mentioned that proposed AS 43.90.170(b)(2) now uses
the term "net back" instead of "wellhead". For financial
reasons, "net back" is a more precise term that clarifies where
the value stops because then the various deductions that vary
lease by lease do not have to be considered; this change was
recommended by the DNR.
CO-CHAIR GATTO commented that this was the underpinning of the
whole AGIA bill - net back value and the likelihood of success.
MS. DAVIS offered that proposed AS 43.90.170(b)(2) now also
includes the words "and treatment"; this captures the gas
treatment valuation as well as transportation [valuation], and
so is more thorough.
6:28:12 PM
MS. DAVIS pointed out that proposed AS 43.90.170(b)(5) now
reflects the change that resulted from the adoption of Amendment
[11a] and reads: "(5) other factors found by the commissioners
to be relevant to the evaluation of the net present value of the
anticipated cash flow to the state, including the value of state
income tax or equivalent payment in lieu of tax and supplemental
profit-sharing to the state if contractually stipulated." In
response to comments, she indicated that this change addresses a
perception issue regarding the state's matching contribution.
REPRESENTATIVE GUTTENBERG referred to proposed AS 43.90.170(c),
and asked whether there was any change made to the way the
commissioners will be evaluating the likelihood of success.
MS. DAVIS stated that no substantive change was made to proposed
AS 43.90.170(c).
COMMISSIONER GALVIN, in response to questions, replied that the
administration does not oppose reinserting the language, "the
amount of the contribution by the state under AS
43.90.110(a)(1)(A) and (B) proposed by the applicant under AS
43.90.1230(9)" - from CSHB 177(O&G), proposed AS 43.90.170(b)(5)
- back in as an explicit consideration. However, if that
language is left out, the contribution will be factored in under
the "catch-all provision."
CO-CHAIR JOHNSON expressed concern that Version K is merely a
Senate committee substitute.
MS. DAVIS offered that 65-70 percent of Version K is not
reflected in the Senate's version of the bill, though Version K
does contain some drafting changes.
6:35:24 PM
REPRESENTATIVE ROSES moved Conceptual Amendment 27, to insert a
new paragraph in proposed AS 43.90.170(b) that would reinsert
the language:
the amount of the contribution by the state under AS
43.90.110(a)(1)(A) and (B) proposed by the applicant
under AS 43.90.130(9);
REPRESENTATIVE WILSON objected for discussion purposes.
REPRESENTATIVE ROSES said he is making the amendment conceptual
because of the references to title numbers that may no longer be
applicable. The legislature has been very prescriptive and
consistent in outlining the 20 "must haves", he stated;
therefore, it is inconsistent to leave up to the commissioners
what will be considered.
REPRESENTATIVE WILSON withdrew her objection.
CO-CHAIR GATTO asked whether there were any further objections.
There being none, Conceptual Amendment 27 was adopted.
6:38:06 PM
COMMISSIONER GALVIN, in response to comments, explained that he
and Ms. Davis are identifying all of the changes incorporated
into Version K from the Senate that were not in CSHB 177(O&G).
He said there are two types of Senate changes: those changes
that were recommended by the administration and those changes
that the administration is uncomfortable with. He assured the
committee that he and Ms. Davis will make it clear which
category a change falls into; he said the committee will be made
aware of all of the changes in the Version K that deviate from
CSHB 177(O&G).
MS. DAVIS, referring to proposed AS 43.90.170(c)(1), noted that
it no longer contains the clause, "the degree to which the
applicant intends to" was deleted; also, the words, "the plan
for encouraging" were replaced with the word, "encourage". In
response to a question, she reiterated that she did not consider
this to be a substantive change. She then mentioned that
proposed AS 43.90.180(a) has been rewritten to clarify that
consideration of public comments is to be done prior to
evaluating completed applications, and that a license refers to
a license issued under this chapter.
6:41:37 PM
MS. DAVIS then relayed that proposed AS 43.90.180(a)(2) now
reads, "publish notice of intent to issue a license under this
chapter with written findings addressing the basis for the
determination; and"; that proposed AS 43.90.180(b) now reads,
"If, after the evaluation of complete applications under AS
43.90.170, the commissioners determine that no application
sufficiently maximizes the benefits to the people of this state
and merits issuance of a license under this chapter, the
commissioners shall issue a written finding that addresses the
basis of that determination."; and that proposed AS 43.90.180(c)
no longer contains the words, "for purposes of appeal to the
superior court".
MS. DAVIS then mentioned that proposed AS 43.90.180 no longer
contains the language, "(d) Within 90 days after a determination
under (b) of this section, the commissioners may issue a new
request for applications for a license under AS 43.90.120.",
adding that this provision is picked up, in part, in the
legislative review process wherein the commissioners, without a
set time limit, are authorized to issue a new request for
applications if there is a denial of the application.
COMMISSIONER GALVIN clarified that if the commissioners do not
receive any qualifying applications, or reject all applications,
or choose not to issue a license after receiving qualifying
applications, they are not authorized to start the process over
again unless the legislature fails to approve a selected
licensee.
CO-CHAIR GATTO said it was his understanding that the
commissioners could not "fix the structure."
COMMISSIONER GALVIN responded that such would require a
legislative change wherein everything would have to be re-
addressed.
REPRESENTATIVE GUTTENBERG inquired whether deleting the words
"for purposes of appeal to the superior court" changes any of
the legal actions that can be taken.
MS. DAVIS replied that that language referred to an appeal that
no longer exists.
6:45:21 PM
MS. DAVIS relayed that changes were made to proposed AS
43.90.190 for the purpose of conforming to Senate language so as
to address procedural concerns regarding the legislative
approval process. Specifically, subsection (b) now also
included the language, "passes the legislature within 90 days
after the last date a presiding officer receives a determination
by the commissioners under AS 43.90.180,", and there is a new
subsection (c) in tended to address the administration's concern
regarding the legislative rule that prevents bills from being
carried forward for more than 30 days during a special session.
Furthermore, what is now subsection (d) reads: "(d) If the
legislature fails to approve the issuance of the license, the
commissioners (1) may not issue the license that the legislature
failed to approve; and (2) may request new applications for a
license under AS 43.90.120." The purpose of this change is to
make it explicit, rather than implicit, that the legislature has
the right to preclude the executive branch from entering into a
contract that the legislature has disapproved of. This doesn't
raise any constitutional issues, she said, because if a
provision is ruled unconstitutional, it is unconstitutional
whether it is stated explicitly or implicitly.
REPRESENTATIVE SEATON characterized 90 days as a lot of time
spent in special session.
MS. DAVIS clarified that the Senate bill has a 60-day limit, and
that the House Special Committee on Oil and Gas had approved a
90-day limit but it did not get included in CSHB 177(O&G).
6:49:25 PM
REPRESENTATIVE SEATON moved Amendment 28 as follows:
Page 14, line 5, before "days"
Delete "90"
Insert "60"
Page 14, line 12, after "the"
Delete "90"
Insert "60"
CO-CHAIR GATTO objected saying that [such a change] would not
add any information or help.
COMMISSIONER GALVIN stated that the original structure of the
bill was basically the equivalent of a legislative veto that had
to be exercised in 30 days otherwise the license would become
effective. The bill was then changed to an approval process
under a timeframe to be chosen by the legislature, thus the
administration cannot move forward until the legislature
approves the bill that approves the license. He commented that
deadlines often drive the timeline for making a decision; if it
is a 60-day timeline then it will likely take 60 days to reach a
decision. He relayed that the administration would be more
comfortable with 60 days than 90 days, and more comfortable
still with 30 days than 60 days.
CO-CHAIR GATTO said he is thinking of a 30-day, or perhaps even
a 45-day limit.
REPRESENTATIVE SEATON submitted that 60 days allows a bill to be
carried over from one special session to another without having
to re-introduce it, but a bill cannot be carried over to the
first regular session of a legislature. He opined that two
special sessions should be enough.
REPRESENTATIVE ROSES agreed.
REPRESENTATIVE WILSON pointed out that it took two special
seasons to address the production profits tax (PPT) legislation.
6:53:34 PM
CO-CHAIR JOHNSON noted that a bill currently being considered,
[HB 117], would require the governor to give the legislature a
30-day notice prior to calling a special session. He asked
whether the time limit would begin at the time of notice or at
the start of special session should this bill become law.
COMMISSIONER GALVIN explained that the clock would start as soon
as the notice is received by the presiding officer, regardless
of whether the legislature is already in session or needs to be
called into special session.
CO-CHAIR JOHNSON surmised that [under a 60-day timeframe] the
legislature would only have 30 days to act following the 30-day
notice.
COMMISSIONER GALVIN concurred.
CO-CHAIR GATTO pointed out that a 30 day timeframe would mean no
time for the legislature to act.
COMMISSIONER GALVIN said that if [HB 117] passes, that would be
the case.
CO-CHAIR JOHNSON stated that he thinks 90 days should be the
number until it is known whether that other legislation passes.
He objected to Amendment 28.
6:56:53 PM
A roll call vote was taken. Representatives Seaton, Roses, and
Gatto voted in favor of Amendment 28. Representatives Edgmon,
Kawasaki, Wilson, Guttenberg, and Johnson voted against it.
Therefore, Amendment 28 failed by a vote of 3-5.
MS. DAVIS drew attention to proposed AS 43.90.200(a) and (f),
which now refers to an administrative appeal, and stated that
this is an important change because it restricts the time period
within which the applicant must move forward with the
certificate. Once administrative appeals, which would come
before the FERC, have been exhausted, a court process cannot
then be undertaken.
REPRESENTATIVE SEATON asked whether there is a need to have an
"amended certificate" addressed in this section.
MS. DAVIS responded that such would be a good clarification to
include.
6:59:58 PM
REPRESENTATIVE SEATON moved Amendment 29 as follows:
Page 14, line 22, after "certificate"
Insert "or amended certificate"
REPRESENTATIVE ROSES asked that Amendment 29 be considered
conceptual in order that the additional wording could be
inserted wherever appropriate throughout the document.
REPRESENTATIVE SEATON agreed.
MS. DAVIS also agreed that this would be helpful because
Conceptual Amendment 29 would apply to subsections (b) and (c),
as well.
CO-CHAIR GATTO asked whether there were any objections to
Conceptual Amendment 29. There being none, Conceptual Amendment
29 was adopted.
7:01:56 PM
MS. DAVIS mentioned that proposed AS 43.90.200(b) and (c) now
contain the caveat, ", at the time the certificate is awarded,",
and surmised that it was merely added by the drafter as a
clarifier. However, she said, this additional language causes
the administration concern because subsections (b) and (c) are
both requirements for an applicant. The licensee must move
forward to project sanction once a FERC certificate is received.
Subsection (b) states that the licensee must move forward to
project sanction within a year after the effective date of the
certificate once the licensee has credit support. She said she
believes that the drafter was trying to identify the point in
time at which credit support is obtained.
MS. DAVIS said that the administration has even more concern
about the change to subsection (c) because "at the time the
certificate is awarded" means that a licensee that does not have
credit support has five years within which to ultimately
sanction the project. She relayed that the administration's
view of that provision had been that it will take the licensee a
period of time to get credit support, for example, two months
after being issued the certificate, at which point the licensee
would then be expected to move forward to sanction. The
administration saw this as a fluid timeline, she argued, and
inserting "at the time the certificate is awarded" changes it to
an absolute timeline.
CO-CHAIR GATTO inquired whether the aforementioned additional
language needs to come out subsection (c), but be retained in
subsection (b).
MS. DAVIS stated that it definitely needs to come out of
subsection (c).
COMMISSIONER GALVIN advised that the clause needs to come out of
both subsection (b) and (c). He said that it needs to be clear
that if the licensee has credit support, he/she gets a year; if
he/she doesn't have credit support, he/she gets five years from
the time the license is issued. He relayed that the
administration believes this clause creates a different intent
than originally envisioned.
CO-CHAIR GATTO surmised that identifying the timeframe when the
licensee has credit support is unnecessary.
COMMISSIONER GALVIN concurred; the licensee will obtain credit
support either before or after receiving the certificate, and
the administration wants the one-year time period to kick in at
that point. In response to a question, he recommended that on
page 14, lines 24 and 30, following "If", the words ", at the
time the certificate is awarded," should be deleted.
7:07:00 PM
REPRESENTATIVE ROSES moved Amendment 30 as follows:
Page 14, line 24
Delete ", at the time the certificate is awarded,"
Page 14, line 30
Delete ", at the time the certificate is awarded,"
There being no objection, Amendment 30 was adopted.
REPRESENTATIVE WILSON drew attention to proposed AS
43.90.200(f), which defines the term, "time the certificate is
awarded", and asked whether this definition was still needed.
MS. DAVIS indicated that subsection (f) should instead define
the phrase, "the effective date of the certificate", which is
used in subsection (b) and (c) of proposed AS 43.90.200.
REPRESENTATIVE WILSON moved Amendment 31 as follows:
Page 15, line 17, after "section,"
Delete "time the certificate is awarded"
Insert ""the effective date of the certificate"
There being no objection, Amendment 31 was adopted.
7:10:13 PM
MS. DAVIS referred to proposed AS 43.90.200(d)(1), and noted the
insertion of the words, "from the Federal Energy Regulatory
Commission or the Regulatory Commission of Alaska, as
applicable,", and that the words, "and transfer the certificate"
were inadvertently omitted.
REPRESENTATIVE WILSON moved Amendment 32 as follows:
Page 15, line 8, after "abandon"
Insert "and transfer the certificate"
There being no objection, Amendment 32 was adopted.
7:12:22 PM
MS. DAVIS pointed out that proposed AS 43.90.200(d)(2) now
reads: "(2) assign to the state or the state's designee all
project data, engineering designs, contracts, permits, and other
data related to the project that are acquired by the licensee
during the term of the license before the date of the
abandonment or transfer." She then relayed that proposed AS
43.90.200(e) remains unchanged. It states that failure to
accept a certificate that is final, or failure to sanction a
project after a year following receipt of credit support, or
failure to sanction a project within five years if the licensee
did not have credit support, will be at no cost to the state.
However, in the administration's version of the bill, an
exception was made for the last category wherein the applicant
proceeded and worked hard, but through no fault of his/her own,
did not receive the credit support to proceed further. For this
scenario, she said, the administration had allowed for that
transfer to be at the licensee's net cost. She relayed that the
Senate's version of that language was the same as the
administration's version.
COMMISSIONER GALVIN submitted that it is the administration's
belief that changing this language is a more commercially
reasonable offer.
MS. DAVIS proposed that the committee consider the following
amendment: on page 15, line 15, insert "or" between "(a)" and
"(b)", and delete ", or (c)"; on page 15, line 16, add a new
sentence stating, "A transfer under (c) of this section is at
the licensee's net cost."
7:15:33 PM
REPRESENTATIVE SEATON moved Conceptual Amendment 33: on page
15, line 15, insert "or" between "(a)" and "(b)", and delete ",
or (c)", and on page 15, line 16, add a new sentence, "A
transfer under (c) of this section is at the licensee's net
cost."
REPRESENTATIVE GUTTENBERG objected and asked how the net cost
would be established and who would establish it, as this cost
could be hundreds of millions of dollars.
COMMISSIONER GALVIN responded that the net cost is intended to
capture the expenditures of the licensee less the state
contribution that was received. In response to a further
question, he said the cost could be $500 million or more, but
the state contribution is capped at $500 million.
MS. DAVIS noted that what the state would be paying for is the
assignment under subsection(d)(2) for the data, engineering
designs, contracts, permits, and other project data which will
have clear invoices and costs.
REPRESENTATIVE GUTTENBERG withdrew his objection.
REPRESENTATIVE ROSES objected and stated that his understanding
of what is being talked about in [proposed AS 43.90.200(c)] is
force majeure, an act of God. He said he did not see how the
failure to get financial backing was an act of God.
COMMISSIONER GALVIN responded that the administration does not
consider to this to be a force majeure issue. He relayed that
if the licensee goes through the effort to get financing, but
fails to get credit support and cannot move the project forward
by the end of the full five years, then this is the situation
described in [proposed AS 43.90.200(c)]. The question in this
instance, he said, is whether the state should be able to obtain
all of the work product for free. The House Special Committee
on Oil and Gas believed that the state should; however, he
stated, the administration does not think it represents a fair
offer.
REPRESENTATIVE ROSES argued that applicants will have committed
to the 20 "must haves" regarding financial stability, credit
lines, and financing plans, therefore they should not be let
"off the hook for free".
COMMISSIONER GALVIN acknowledged that the aforementioned is
true. However, he contended, there is the potential situation
of an applicant's financing being contingent on getting gas
commitments that then don't materialize. The question then
becomes whether the state should be able to get all of the
licensee's data for free or reimburse those costs.
7:21:26 PM
REPRESENTATIVE ROSES noted that there is a clause elsewhere in
the bill that says if a licensee abandons the project, his/her
data must be given to the state. The ability to finance the
project and the kind of credit backing that an applicant has
should be the key criteria, he opined.
COMMISSIONER GALVIN clarified that the abandonment provision
provides that the state will receive the data at net cost should
the commissioner and licensee agree that the project is
uneconomic. He reiterated the administration's belief that it
is reasonable for the state to acquire the data and move forward
on its own should the licensee be unable to make the project
happen after a period of time. However, he said, one must also
look at it from the applicants' point of view. When applicants
are considering the risks and the investment of hundreds of
millions of their own dollars in the [project], the state could
be viewed as being overreaching. The administration is
concerned this might deter someone from applying, he related.
CO-CHAIR GATTO said that was also his thought.
REPRESENTATIVE WILSON said she agrees that it might keep someone
from applying because of the prospect of the producers not
showing up for the open season as a way to force the project to
start over again.
REPRESENTATIVE SEATON submitted that there are two situations.
The first one is where the project is uneconomic and the state
would buy the data. The second one is where the project is
economic but still doesn't happen for some reason, such as the
producers not committing gas at open season. In this second
case, the state is left with no project, no certificate, and no
data. There needs to be some kind of future leverage and
liability if it is an economic project, he contended, and this
seems reasonable, from a commercial standpoint, for the state to
get applicants to the table.
REPRESENTATIVE ROSES argued that the bill references a lack of
credit support, not a lack of an FT commitment. One of the
"must haves" is the financial viability to complete this project
and [Conceptual Amendment 33] would make it a "might have".
COMMISSIONER GALVIN read aloud from subsection (c). It is all
tied together, he maintained, because FT commitments may be
relied upon in full or in part as a basis for credit support.
He explained that FT commitments are only one of the building
blocks upon which financing might be based. "It is the nature
of the offer that the state is making," he said, as to whether
the state gets the information for free or buys it at the
licensee's cost should the licensee become unable to get the
necessary credit support.
7:29:47 PM
CO-CHAIR JOHNSON asked if it would be possible to have a
scenario wherein a licensee spends the [state's] $500 million on
something else and spends his/her own money on "this" so that
the state must pay back the licensee in addition to being out
the $500 million.
COMMISSIONER GALVIN responded that the $500 million can only be
spent on those activities that bring the licensee to a FERC or
RCA certificate.
CO-CHAIR GATTO surmised that if half of the licensee's money and
half of the state's money have gone into the project up to that
point, then the licensee's net costs would exclude the portion
put up by the state.
COMMISSIONER GALVIN concurred.
REPRESENTATIVE ROSES inquired whether Commissioner Galvin saw
this as compromising or contradicting any of the "must haves" in
the application process.
COMMISSIONER GALVIN responded no.
REPRESENTATIVE ROSES withdrew his objection.
CO-CHAIR JOHNSON objected.
A roll call vote was taken. Representatives Seaton, Guttenberg,
Edgmon, Wilson, and Gatto voted in favor of Conceptual Amendment
33. Representatives Roses, Kawasaki, and Johnson voted against
it. Therefore, Conceptual Amendment 33 was adopted by a vote of
5-3.
The House Resources Standing Committee was recessed at 7:35 p.m.
to be continued at approximately 7:45 p.m.
CO-CHAIR GATTO called the meeting back to order at 7:52:38 PM.
Representatives Gatto, Johnson, Roses, Guttenberg, Edgmon,
Wilson, Kawasaki, and Seaton were present at the call to order.
[Following was discussion regarding rescinding a committee
action.]
The committee took an at-ease from 7:53 p.m. to 7:54 p.m.
REPRESENTATIVE ROSES moved to rescind [the committee's action in
adopting] Conceptual Amendment 33.
CO-CHAIR GATTO objected.
REPRESENTATIVE ROSES pointed out that under the current
provisions of the bill, there is a 50/50 match for the licensee
up to the open season, and after the open season it is an 80/20
split up and through the certification process. If the licensee
spends $200 million to get to the open season, then the state
and the licensee will each have spent $100 million under the
50/50 split provision. If the licensee then spends $500 million
for the next phase, the state's share under the 80/20 split will
be $400 million and the licensee's share will be $100 million.
The total cost is now $500 million to the state and $200 million
to the licensee. If, at this point, the licensee loses the full
credit support that it had at the time of its application,
[Conceptual Amendment 33] allows for the licensee to now get out
of the contract and be reimbursed by the state for that
information - resulting in a cost of $700 million to the state
and zero to the licensee. Is this really what the state wants
to do, he asked.
CO-CHAIR GATTO inquired whether it is possible for the state to
expend more money than the licensee.
COMMISSIONER GALVIN indicated that such could be the case. At
the time of application, the applicant does not have to
demonstrate that it has the credit secured to finance the entire
project. Rather, the applicant is providing a financial plan
that is conditional upon certain things occurring in the future,
such as FT commitments or government support. It is not a
question of the credit support vanishing, he stated, but rather
that it didn't ever materialize.
COMMISSIONER GALVIN said that while he is swayed by
Representative Roses's scenario, from the perspective of the
applicant, should the credit support that is being planned on
not materialize, then the applicant is left with nothing. The
biggest risk, he said, is creating a framework that is deemed
too much of a commercial risk by potential applicants, thereby
scaring off the very people that the state is trying to attract.
In trying to strike a balance, the question is, which risk is
the state willing to take. At this particular point in time, he
stated, the administration feels it is more appropriate to
create an attractive situation without impediments, while
recognizing that it could put the state in a position of
spending additional monies to get the product.
8:03:02 PM
REPRESENTATIVE ROSES acknowledged that point, but noted that
witnesses have stated several times that the best work and best
analysis must be done prior to getting to the open season. He
expressed his concern that a situation is being set up whereby
applicants are being encouraged to invest as little as possible
and do the least amount of analysis possible because there is
little risk since they would be able to get their money back.
He stressed his belief that having something at risk going in is
what ensures that the applicants will do their best work up
front.
REPRESENTATIVE ROSES explained that his intent in asking the
committee to rescind its action in adopting Conceptual Amendment
33 is to re-offer it with a change: instead of the state paying
100 percent of the licensee's net cost, the buy back would be at
50 percent of the licensee's net cost. This would strike a
happy medium, he said, because this way a licensee would have to
expend at least $100 million of its own money.
REPRESENTATIVE WILSON noted that during the discussions with
producers and pipeline companies, both had said that there were
times when no applications were received for the open season.
Both said that this then resulted in negotiating a different
rate. Therefore, she asked, at what point is the licensee
abandoning the project and working toward another open season.
COMMISSIONER GALVIN advised that after an unsuccessful open
season under AGIA, the licensee would be required to continue
moving and making expenditures towards getting the certificate.
During that period of time, the licensee would be free to hold
additional open seasons to try to obtain the needed commitments.
At some point the certificate will be received and then, under
the section being discussed, the clock will start. Upon receipt
of FT commitments and credit support, the licensee has one year
to sanction the project and begin to move. However, if the open
seasons continue to be unsuccessful, the licensee has five years
to continue holding open seasons, refine the project, and
negotiate ways to get those commitments. If during this time
the licensee gives up, then a different section of AGIA applies
and the state obtains the information through that other means,
he explained. If it goes all the way through that five year
period, it becomes the scenario described by Representative
Roses. Under Conceptual Amendment 33, he said, the question
becomes whether the licensee must forfeit all of the work
product to the state for free or receive payment for net costs.
REPRESENTATIVE ROSES withdrew his motion to rescind the
committee's action in adopting Conceptual Amendment 33.
8:10:19 PM
REPRESENTATIVE ROSES moved Conceptual Amendment 34, to change
the new sentence added to page 15, line 16, via Conceptual
Amendment 33 to read: "A transfer under (c) of this section is
at 50 percent of the licensee's net cost." There being no
objection, Conceptual Amendment 34 was adopted.
COMMISSIONER GALVIN stated his support or Conceptual Amendment
34, but noted that it causes a potential conflict if the section
on abandonment is not similarly amended.
MS. DAVIS drew attention to proposed AS 43.90.210 wherein two
additional conditions were added - on page 15, lines 21-23 -
that would justify a modification to the project plan; the new
language reads, "improve the net present value of the project to
the state, are necessary because of an order issued by the
Alaska Oil and Gas Conservation Commission,". She noted that
language on page 15, lines 25-29, now provides that an amendment
or modification may not diminish the net present value to the
state of the project or the likelihood of success for the
project unless the amendment or modification was required by the
AOGCC.
COMMISSIONER GALVIN pointed out a typographical error on page
15, line 27, wherein the word "Conservation" was omitted.
8:14:31 PM
REPRESENTATIVE SEATON moved Amendment 35 as follows:
Page 15, line 27, between "Gas" and "Commission"
Insert "Conservation"
There being no objection, Amendment 35 was adopted.
MS. DAVIS referred to proposed AS 43.90.220(b) wherein the words
", books, and files" was added to expand what may be audited.
The remaining portion of subsection (b) was rephrased to
accommodate a change in language throughout the bill where the
word "contribution" was changed to either "state money" or
"money". She noted that proposed AS 43.90.220(c) of Version K
now contains the language found in proposed AS 43.90.220(b)(2)-
(3) of CSHB 177(O&G).
MS. DAVIS said that proposed AS 43.90.220(d) gives the state a
seat at the table in perpetuity. However, she pointed out,
under the administration's version of the bill, that authority
would have ended with commencement of commercial operations; the
administration believes it is unnecessary to have a seat at the
table once the pipeline commences operation because the
administration's primary concern is related to the period from
issuance of the license until financing of the construction. A
seat at the table in perpetuity would create difficulty for the
state regarding how to assign someone these duties and ensure
that he/she does not communicate inappropriately to others
within the state. Therefore, she advised, the administration
recommends returning to the language, "until commencement of
commercial operations"; this language would be inserted on page
16, line 11, in place of the words, "so long as the terms of the
license continue to apply".
CO-CHAIR GATTO noted that language on line 12 only states that
the licensee "shall allow the commissioners", and, therefore,
there is no necessity for the commissioners to attend any
meeting.
MS. DAVIS responded that having a right usually presumes
exercise of that right in some fashion. She acknowledged that
Co-Chair Gatto is correct, but that the state's legal rights
could be compromised somewhere down the road if the state has
objections or concerns about actions that were taken by the
pipeline company. The pipeline company could then argue that
the state had a right to be at the table but waived its rights
to object by choosing not to attend.
REPRESENTATIVE GUTTENBERG asked whether the administration
considers that the terms of the license no longer apply at the
point of commercial operation.
MS. DAVIS answered no, the administration believes the license
would continue to apply so long as the pipeline is operating.
8:20:49 PM
REPRESENTATIVE WILSON moved Amendment 36 as follows:
Page 16, line 11, after "and"
Delete "so long as the terms of the license continue
to apply"
Insert "until commencement of commercial operations"
CO-CHAIR GATTO asked for the definition of "commercial
operations".
MS. DAVIS said language on page 28, lines 20-21, defines
"commencement of commercial operations" to mean "the first flow
of gas in the project that generates revenue to the owners".
REPRESENTATIVE ROSES objected to Amendment 36. Although not
exercising a right could put the state in a cumbersome position
in the event of adjudication, would the state not also be in a
difficult position if it was a member of the board and the state
chose to adjudicate, he asked.
MS. DAVIS responded that being on a board with the power to sway
votes and influence the outcome of meetings would put a party in
the position of being bound by not acting. Having the right of
observation puts a party in the situation wherein it is aware of
information so that a failure to act could be argued as being a
waiver. However, in terms of the state being bound by the
actions being taken, she said she did not believe that would be
an issue here because of the observation rights as opposed to
the ability to influence votes.
REPRESENTATIVE ROSES inquired whether there could be a situation
at a meeting wherein the information is deemed proprietary by
the licensee and therefore [the state representative] would be
unable to share the information, thus defeating the purpose of
the state being at the table.
MS. DAVIS explained that part of having this right of access and
right to information is what brings the state within the veil of
any argument that that information is proprietary. By essence
of this being law, the licensee has waived any argument that the
state cannot access the information.
REPRESENTATIVE ROSES withdrew his objection.
CO-CHAIR asked whether there were any further objections. There
being none, Amendment 36 was adopted.
8:23:53 PM
MS. DAVIS relayed that proposed AS 43.90.220(e) now reads, "(e)
A licensee shall maintain the records and reports required under
this section for seven years from the date the licensee receives
state money under this chapter.", and that proposed AS
43.90.230(a)-(d) now reads:
(a) A licensee is in violation of the license if the
commissioners determine that the licensee has
(1) committed money received from the state under
this chapter for an expenditure that is not a
qualified expenditure under AS 43.90.110;
(2) substantially departed from the
specifications set out in the application without
state approval of a project plan amendment or
modification under AS 43.90.210;
(3) violated any provision of this chapter or any
other provision of state or federal law material to
the license; or
(4) otherwise violated a material term of the
license.
(b) The commissioners shall provide written notice to
the licensee identifying a license violation. The
commissioners and the licensee have 90 days after the
date the notice is issued to resolve the violation
informally.
(c) The commissioners may suspend disbursement of
state matching contributions to the licensee beginning
on the date that the notice of violation issued under
(b) of this section is sent to the licensee. The
commissioners may resume disbursement on the date that
the commissioners determine that the violation is
cured.
(d) If the commissioners and the licensee are unable
to resolve the violation within the time specified in
(b) of this section, the commissioners shall provide
the licensee with notice that the violation has not
been cured and provide the opportunity for the
licensee to be heard. If after notice and hearing the
commissioners determine that the violation has not
been cured, the commissioners shall issue a written
decision that is a final administrative action for
purposes of appeal to the superior court in the state.
MS. DAVIS noted that one of the changes to proposed AS
43.90.230(d) ensures that the State of Alaska has jurisdiction.
She also mentioned that proposed AS 43.90.230(e)(1)-(4) now
reads:
(e) If the determination issued under (d) of this
section finds an unresolved violation, the
commissioners may impose one or more of the following
remedies:
(1) discontinuation of state matching
contributions under this chapter;
(2) recoupment of state money that the licensee
has received under this chapter to date, with
interest, regardless of whether the licensee has
expended or committed that money;
(3) license revocation;
(4) assignment to the state or the state's
designee of all project data, engineering designs,
contracts, permits, and other data relating to the
project that are acquired by the licensee during the
term of the license; and
MS. DAVIS recommended that proposed AS 43.90.230(f)(2) be
amended by inserting the words "or the state's designee" between
"state" and "all". This wording is needed throughout the bill
because there may be instances where it is appropriate for the
product, or material, to be in the hands of a designee.
8:27:46 PM
REPRESENTATIVE ROSES moved Conceptual Amendment 37, to insert
the words, "or state's designee" after the word, "state" on page
17, line 31, and to add this wording throughout the bill where
needed.
REPRESENTATIVE GUTTENBERG objected to express disfavor with the
entirety of subsection (f).
CO-CHAIR GATTO asked whether there were there were any
objections to Conceptual Amendment 37. There being none,
Conceptual Amendment 37 was adopted.
REPRESENTATIVE GUTTENBERG, referring to subsection (f), asked
how that provision relates to enforcement.
COMMISSIONER GALVIN referred to subsection (e), which provides a
list of remedies available to the commissioners should it be
determined that a violation has occurred. That list includes
license revocation and assignment of the data. He conveyed that
the House Special Committee on Oil and Gas wanted to specify
that if license revocation is chosen as the remedy, then
assignment of the data is required, and subsection (f) ensures
that this occurs. In response to a question, he said that
should it be determined that a violation has occurred that has
not been resolved, then the commissioners can determine which
remedy is appropriate or if all of them are appropriate. In
regard to whether subsection (f) is necessary, it is simply a
matter of whether a revocation of the license should
automatically be tied to a requirement of assigning all of the
data.
8:31:34 PM
REPRESENTATIVE GUTTENBERG inquired whether subsection (f)
provides the authority to have everything that has been done by
the licensee assigned to the state.
COMMISSIONER GALVIN indicated that it did; the state already has
that authority under the current language in subsection (e),
and, again, subsection (f) simply eliminates the commissioners'
discretion to revoke the license and choose not to require
assignment of all of the data. He relayed that the
administration opposed this change by the House Special
Committee on Oil and Gas, and would therefore not be opposed to
deletion of subsection (f).
CO-CHAIR JOHNSON asked whether the definition of "matching" on
page 17, line 6, would also encompass the "80/20."
MS. DAVIS said it applies regardless of whether the ratio is
50/50 or 80/20.
REPRESENTATIVE SEATON commented that subsection (f) prevents re-
application by the licensee as well as assigns the data.
COMMISSIONER GALVIN concurred. He acknowledged that this is
potentially troubling because there could be a scenario in which
events occur that would preclude the commissioners and the
licensee from modifying the project plan because doing so would
reduce the NPV of the project. This could force a violation to
occur even if the licensee acted in good faith and the state
wanted to allow the licensee to compete in the next phase with
new information becoming available. Having the licensee
precluded may potentially run counter to what would be in the
state's interests at that particular time, he argued.
COMMISSIONER GALVIN, in response to a question, presented a
scenario in which an applicant comes in with a certain project
design but is forced to request a modification because it turns
out that the gas isn't there or something else affects the
licensee's ability to deliver that type of a project. Even if
the commissioners support the proposed modification, they do not
have the authority to authorize it if it lowers the project's
NPV. The project may still be economic, but cannot be modified
and the licensee now cannot fulfill the application. This would
result in having to go through the violation and revocation
provision or result in a voluntary relinquishment on the part of
the applicant.
8:36:10 PM
REPRESENTATIVE ROSES remarked that he cannot understand how that
scenario could occur because after the open season the criteria
allows the licensee to modify the project to fit that open
season.
COMMISSIONER GALVIN responded that this applies only if a
contingency clause was included in the licensee's original
proposal. If there is no such contingency clause in the
original proposal, then only those changes allowed under the
modification provision can be undertaken and they cannot reduce
the NPV of the project.
REPRESENTATIVE ROSES stated that was one of the reasons for his
amendment that allowed an applicant to propose various pipe
capacities in order to make adjustments for possible variations
in the FT at the open season. Given this parameter, why allow a
licensee to re-bid on a project that should have been bid
properly in the first place, he asked.
COMMISSIONER GALVIN replied that it is a matter of when the
state goes back out for applications. Should a licensee be
automatically precluded from submitting a new bid or allowed to
compete with a new proposal based upon what will be new
information, he asked.
8:37:53 PM
REPRESENTATIVE ROSES argued that the licensee should not be
allowed to re-bid because the other bidders are not allowed to
participate once they are rejected. He contended that this
allows the licensee who bid incorrectly to compete with a bidder
who may have had the correct proposal to start with but was not
chosen.
MS. DAVIS reminded the committee that in the evaluation criteria
there is a specific provision relating to track record,
experience, business integrity, and other elements that can be
scrutinized. She commented that should a subsequent application
be received from a previous licensee, it will receive close
scrutiny as opposed to an application that was right the first
time.
MS. DAVIS said the licensee is going to be a named entity, and
in all likelihood it will be a large limited liability
corporation consisting of multiple parties. She predicted that
it would be difficult to form a new entity for submitting a bid
the next time around, or that there would be a different mix of
players. It would be problematic for the state to assess
whether or not the same licensee is submitting a new
application, she opined, because there would be no guidance as
to whether being the same means more than 50 percent of the same
ownership. The state could find itself in a very bad position
trying to administer this provision, she argued. The
administration's belief is that subsection (f) creates more
difficulty than it solves, she relayed, particularly since there
is another mechanism in place to solve the aforementioned
problem.
CO-CHAIR GATTO commented that the part of the project plan that
caused the licensee to default would probably be changed in the
new application.
REPRESENTATIVE WILSON inquired whether the administration wished
to remove subsection (f).
MS. DAVIS said just paragraph (1) of subsection (f) needed to be
removed.
COMMISSIONER GALVIN clarified that he would prefer the removal
of all of subsection (f).
MS. DAVIS, in response to a comment, clarified that if
subsection (f)(1) is removed, the state still has a means under
the application evaluation criteria to identify whether the same
licensee is coming back through the second round. She further
stated that she did not believe subsection (f)(2) was necessary
given that subsection (e) provides that the commissioners may
apply "one or more of the following remedies" which include
license revocation and assignment of the data.
8:42:30 PM
REPRESENTATIVE WILSON moved Amendment 38, to delete proposed AS
43.90.230 (f).
[The committee decided that the change proposed by Conceptual
Amendment 37 would still apply throughout the remainder of the
bill.]
CO-CHAIR GATTO asked whether there were any objections to
Amendment 38. There being none, Amendment 38 was adopted.
8:43:31 PM
MS. DAVIS directed attention to proposed AS 43.90.240(a), which
now uses the word, "inducement" rather than the word,
"entitlement". Proposed AS 43.90.240(b) no longer contains
references to the Commercial Arbitration Rules of the American
Arbitration Association; inserted in its place is the clause
"under the substantive and procedural laws of this state". She
said this change was made to the Senate's version of the bill
because there was concern that reference to Commercial
Arbitration Rules would be confusing given Alaska's adoption of
the Uniform Arbitration Act. Furthermore, subsection (b)
specifies that a judgment may be entered in the state's superior
court.
MS. DAVIS, in response to a question, explained that the word
"entered" as used in subsection (b) is a legal term meaning that
an arbitration award has the same force and power as a superior
court decision. In response to further questions, she relayed
that once an arbitration award is entered as a judgment in the
State of Alaska, it can then be enforced in other states, and
that an arbitration award can be enforced in other countries
provided the United States' treaty with a particular country
recognizes enforceability of judgment agreements.
MS. DAVIS mentioned that subsection (b) now clarifies that all
arbitrators shall be selected from the American Arbitration
Association's National Roster. In response to comments and a
question, she said that the administration is not "forum
shopping" relative to choice of law; the administration has
decided to abide by state law.
MS. DAVIS, in response to another question, explained that the
words in subsection (a), "under (f) of this section and AS
43.90.220" refers to subsection (f) of proposed AS 43.90.240 and
to the entirety of proposed AS 43.90.220. She noted that
proposed AS 43.90.240(b)(1) now longer contains the words,
"project shall be abandoned" because the administration is
trying to get away from having project abandonment be a decision
point and instead stay focused on whether the project is
economic.
8:51:00 PM
MS. DAVIS relayed that proposed AS 43.90.240(b)(2) now reads,
"(2) not uneconomic, the obligations of the licensee and the
state continue as provided under this chapter and the license.",
and that proposed subsection (c) is essentially a new subsection
defining the term, "uneconomic" so as to provide guidance to the
arbitrators regarding whether a project is uneconomic.
CO-CHAIR GATTO surmised that "preponderance of the evidence" is
a lower bar than "clear and convincing".
MS. DAVIS concurred; the state could be the party seeking to
prove something is uneconomic and, thus, this standard will keep
things fair. She then explained that the definition of
"uneconomic" has two prongs. The first prong, proposed
subsection (c)(1), states that either the applicant or the state
would need to demonstrate that the "project does not have credit
support sufficient to finance construction of the project". She
pointed out that ownership and control of gas resources does not
qualify as credit support. This is because a producer
affiliate-owned pipeline would be unable to demonstrate that it
had no control of gas, therefore this type of pipeline owner
would be precluded from ever showing that a project is
uneconomic. A producer affiliate-owned pipeline could certainly
have a situation, she offered, where a project was uneconomic
due to such things as commodity pricing of the gas, construction
material, and market conditions.
8:53:04 PM
MS. DAVIS referred to the second prong of the definition of
"uneconomic" - proposed subsection (c)(2) - and relayed that the
gas team had extensive discussions as to what constitutes
uneconomic, and determined that an objective test would be for
the arbitrator to look at whether there would be shippers
willing to ship gas on the pipeline under the economic
assumptions of a fully loaded pipeline and the market prices
predicted for the time that the gas would be brought on. Thus,
paragraph (1) is a subjective standard, she said, and paragraph
(2) is an objective standard.
CO-CHAIR GATTO commented that the words "typically" and
"prudent" as used in paragraph (2) could be interpreted
differently depending on which side of the fence a person is on.
MS. DAVIS stated that proposed AS 43.90.240(d) relates to the
burden of proof. However, she reported, this language creates a
problem because under Alaska law, the burden of proof is already
adequately dealt with through the statutory structure of the
Uniform Arbitration Act. Therefore, the administration would
not oppose deletion of this subsection in order to avoid
confusion.
8:55:32 PM
REPRESENTATIVE SEATON moved Amendment 39, to delete subsection
(d) from page 19, lines 3-4, and renumber the rest of the
subsections accordingly. There being no objection, Amendment 39
was adopted.
MS. DAVIS noted that proposed AS 43.90.240(f) now reads:
(f) If the commissioners and the licensee agree that
the project is uneconomic or an arbitration panel
makes a final determination that the project is
uneconomic, the licensee shall deliver to the state or
the state's designee all engineering designs,
contracts, permits, and other data relating to the
project that are acquired by the licensee during the
term of the license upon reimbursement by the state of
the net amount of expenditures incurred and paid by
the licensee that are qualified expenditures for the
purposes of AS 43.90.110.
MS. DAVIS said that this language is consistent throughout the
rest of the bill and clarifies that the data being turned over
is data and information acquired during the term of the license.
MS. DAVIS next directed attention to proposed AS 43.90.250,
regarding the Alaska Gasline Inducement Act coordinator. She
relayed that much of the debate on this issue is focused on
language in subsection (b), regarding the coordinator's
appointment being subject to confirmation by the legislature.
She said that according to the drafter, this position does not
fit within the list of positions that require confirmation under
the Alaska State Constitution.
8:57:47 PM
REPRESENTATIVE EDGMON moved Amendment 40, which read [original
punctuation provided]:
Page 19, lines 26-29:
Delete: "The initial appointment is subject to confirmation by
the legislature and an appointment is subject to reconfirmation
by the legislature during the first regular legislative session
after a general election at which a governor is elected."
CO-CHAIR JOHNSON objected for the purpose of discussion.
CO-CHAIR JOHNSON inquired whether there is a way for the
legislature to appoint the coordinator without him/her being a
commissioner. He voiced his opinion that the legislature should
have a say in who is appointed.
COMMISSIONER GALVIN conveyed that the drafter has identified
this as being a constitutional issue, and that there had been an
amendment to overcome that by making it a commissioner-type of
position. He said the administration has no recommendations as
to how to overcome the legal issue. He relayed that he was
previously the director of the Division of Governmental
Coordination within the governor's office and was responsible
for coordinating the policy decisions amongst the resource
agencies. It was very similar to the function of the
coordinator position described in HB 177 as far as being
responsible for working with all the departments and ensuring
that the regulatory programs are operating as efficiently as
possible, as well as using the influence of the governor's
office to establish what the decision should be within the
bounds of each agency's respective authority. His position was
appointed by the governor, he said, and was not subject to
confirmation by the legislature. Therefore, it is not an
unprecedented type of authority or position, he argued, and the
question becomes whether the legislature feels comfortable
creating such a position under the constitutional limitations
pointed out by the drafter.
9:02:08 PM
REPRESENTATIVE EDGMON remarked that he, too, was skeptical until
hearing the description from the commissioner and learning that
the position is mostly that of a facilitator and does not have
fiduciary responsibilities like commissioners do. This is a
clear line in the sand, he said, regarding whether the person
holding this position should be confirmed by the legislature or
be selected by the governor.
COMMISSIONER GALVIN added that the position's authority is
extremely limited since the coordinator does not have authority
to adopt regulations, and has no oversight of a budget or staff.
The coordinator's role is only that which is established in
subsections (b) and (c) of proposed AS 43.90.250. The
coordinator is subject to support by the governor's office as
well as removal for any cause, he stated.
CO-CHAIR GATTO commented that the word "coordinator" sounds like
a liaison position.
COMMISSIONER GALVIN agreed. He said the coordinator's most
significant role will be acting as an information liaison
between state agencies, federal agencies, and pipeline
proponents.
CO-CHAIR GATTO stated that given there is no staff, he is
reluctant to establish the position at a commissioner level.
REPRESENTATIVE ROSES observed that a previous amendment of his
that failed was not advocating for adding another commissioner,
but for simply having the opportunity for a confirmation process
if that was so chosen. Amendment 40, he said, is a matter of
whether to risk running into a constitutional issue by leaving
the language in or to avoid that possibility by taking the
language out.
CO-CHAIR JOHNSON withdrew his objection, but said that approval
of the coordinator is something that he would like to pursue.
CO-CHAIR GATTO asked whether there were any further objections.
There being none, Amendment 40 was adopted.
The committee took an at-ease from 9:06 p.m. to 9:15 p.m.
REPRESENTATIVE EDGMON moved Amendment 41, to delete the word,
"typically" from page 18, line 31. There being no objection,
Amendment 41 was adopted.
9:16:38 PM
MS. DAVIS mentioned that proposed AS 43.90.250(b), on page 19,
line 29, the word, "person" was replaced with the words,
"individual serving as the Alaska Gasline Inducement Act
coordinator" and that no changes were made to proposed AS
43.90.250(c)-(d) or proposed AS 43.90.260. Furthermore, what is
now proposed AS 43.90.300(a) no longer contains a reference to
the tax exemption in AS 43.90.320 and changing the inducement to
being contractual. She said this change was made in the Senate
version of the bill and relates to the debate regarding the
constitutionality of the tax exemption provision. Proposed AS
43.90.300(b), beginning on page 21, line 3, is a new subsection
relating to a new voucher, and language establishing the voucher
can be found in proposed AS 43.90.330.
COMMISSIONER GALVIN returned the committee's attention to
proposed AS 43.90.240(f), and recommended that the committee
consider adding a "50 percent" limitation similar to what was
added via Conceptual Amendment 34 to proposed AS 43.90.200(e).
REPRESENTATIVE ROSES moved Amendment 42 as follows:
Page 19, line 17, after the second "of"
Insert "50 percent of"
REPRESENTATIVE ROSES stated that he had intended for [Conceptual
Amendment 34] to apply throughout the entire bill.
COMMISSIONER GALVIN suggested that such a change be done
separately throughout the bill, rather than globally, because
there are different justifications each time for what the
distribution of the costs might be.
CO-CHAIR GATTO asked whether there were any objections to
Amendment 42. There being none, Amendment 42 was adopted.
9:22:08 PM
REPRESENTATIVE GUTTENBERG, referring to page 21, lines 1-2 -
proposed AS 43.90.300(a) - requested further explanation of the
inducement in proposed AS 43.90.310 being contractual.
MS. DAVIS explained that when HB 177 was originally introduced,
it had two provisions for inducements for resource owners - a
royalty provision and a tax exemption provision. The royalty
provision clearly needed to be contractual, she said, because it
affects the royalty terms in the lease. The administration also
originally wrote the tax exemption as contractual because it
called for a tax certificate to be signed by the commissioner
and the resource owner. Under terms of the tax certificate, the
state would provide the tax exemption in exchange for the
resource owner committing gas at the initial open season and
agreeing to the rolled-in rate treatments that the pipeline
company was bound by.
MS. DAVIS relayed that the administration believes this to be a
superior approach because it considers AGIA to be a law of
general application and, because the constitution states that
the taxing power may be contracted away, the contractual
structure did not conflict with constitutional requirements.
However, she said, the Senate believes that this exemption is
granted by contract and not by general law, and therefore [the
Senate] stripped out the contractual underpinnings for the
exemption. So, she stated, it becomes a debate of whether AGIA
is a law of general application that then allows a contract to
be entered into versus does it just provide a tax exemption
because of the contract.
REPRESENTATIVE GUTTENBERG offered his understanding that the
Senate thought having it as a law of general applicability was
stronger constitutionally than contractually.
MS. DAVIS offered her belief that the Senate felt it was a
stronger exemption, she said, as no contractual provision
preserves the ability of future legislatures to make changes.
She pointed out that under the Constitution of the United
States, future legislatures are prohibited from impairing
contracts authorized by earlier legislatures, provided it is
expressly stated that that original contract was intended by
that legislature to be treated as a contractual commitment.
REPRESENTATIVE GUTTENBERG opined that one legislature does not
have the authority to bind future legislatures, but acknowledged
the administration has a different position.
REPRESENTATIVE ROSES said the state is going to offer a license
to someone for years to come and if the next legislature can
decide to undo it, then no one will ever want to bid on anything
the state is going to do, he opined.
REPRESENTATIVE GUTTENBERG submitted that for the bidders it is
an uncertainty that has to be overcome. He stated that he wants
to make sure that if that law is struck down it cannot be locked
in and that it doesn't become an excuse for [the licensee] to
stop the contract.
REPRESENTATIVE SEATON observed that proposed AS 43.90.310 is the
royalty inducement, not the tax inducement. Since the tax
inducement is not specifically cited as being contractual, it
can be presumed that it is not contractual. Under general law,
he said, tax and royalty are treated separately.
COMMISSIONER GALVIN suggested that further discussion in regard
to contractual issues be postponed until the actual tax
provisions are reviewed in later sections of the bill.
9:30:02 PM
MS. DAVIS went on to explain that proposed AS43.90.300(b) was
inserted to address the situation wherein a gas producer is
receiving a voucher, which is a mechanism whereby a buyer of gas
can purchase gas on the North Slope and acquire capacity in the
pipeline even though the buyer is not a producer, and the buyer
can then ship gas down the pipeline. This ensures that AGIA
incentivizes not only gas producers to acquire pipeline
capacity, but also buyers of gas. She relayed that utility
companies and other gas buyers wanted to receive the benefit of
the resource inducements. The voucher allows the gas buyer to
transfer royalty and tax benefits to the producer in return for
a lower gas purchase price. She said that currently on the oil
side, buyers typically buy at a flat rate plus the tax and
royalty because the producers do not want to take the risk that
tax and royalty might vary over time. Vouchers will enable a
producer to establish a price and then get the benefit of
reduced royalty and tax.
REPRESENTATIVE SEATON asked about the time period referenced in
proposed AS 43.90.330(b).
MS. DAVIS referred to the clause in proposed AS 43.90.330(b),
which states, "entitles the holder of the voucher to the
resource inducements in AS 43.90.310 and AS 43.90.320". She
explained that the inducements in AS 43.90.310 and AS 43.90.320
are tied to the duration of the capacity commitment, so it is an
indirect reference to that period. Separately, she said,
proposed AS 43.90330(c) provides that once a buyer delivers the
voucher to the producer, the voucher's duration is the earlier
of the duration of the buyer's gas purchase agreement with the
producer or the expiration of the inducement by operation of
law. Thus the expiration of the inducement ties back to AS
43.90.310 and AS 43.90.320. The tax is 10 years and the royalty
is the duration of the FT commitment; they are different which
is why there are references to operation of law.
REPRESENTATIVE SEATON asked whether it makes a difference that
one is contractual and the other is operation of law.
MS. DAVIS replied no.
9:35:21 PM
MS. DAVIS turned attention to proposed AS 43.90.310(a) -
specifically the language that says, ""or shipped in the firm
transportation capacity described in a voucher received by the
gas producer under AS 43.90.330; this new language references
the royalty inducement and ties in the voucher provision. She
then noted a typographical correction that was made to the end
of proposed AS 43.90.310(a)(2)(D): insertion of the word "and"
after the semicolon.
REPRESENTATIVE GUTTENBERG asked whether "the royalty settlement
agreement" was in court.
COMMISSIONER GALVIN responded that a settlement agreement was
reached; the 1980 royalty settlement agreement for Prudhoe Bay
permitted certain deductions, so "this" is just acknowledging
"those."
MS. DAVIS mentioned that proposed AS 43.90.310(a)(3)(A) no
longer references a "qualified person", but rather just "other
person". She explained that the word, "qualified" was an
artifact from earlier draft when the intention was to define a
qualified person, and that the voucher essentially embodies that
concept. She pointed out that the wording in proposed AS
43.90.310(a)(3)(B) has simply been reordered. She referred to
proposed AS 43.90.310(b)(1) wherein there is a reference to the
requirement that the initial regulations enacted by the
commissioner of the DNR could be contractually incorporated and
amended and put into the lease. Every two years thereafter the
commissioner of the DNR is to review the regulations and revise
them if they were not producing the benefits promised by AGIA,
and there could be a second election by the producer to
incorporate the revised regulations. The drafter placed these
two concepts into two subparagraphs, she said; subparagraph (A)
references the incorporation of the new regulations, and
subparagraph (B) references the election and incorporation of
revised regulations. Ms. Davis noted that proposed AS
43.90.310(b)(2) now contains subparagraphs (A) and (B) due to
the adoption of an amendment on 4/23/07.
9:39:18 PM
REPRESENTATIVE SEATON moved Amendment 43, which read [original
punctuation provided]:
Page 22, line 26 After "notice"
Insert "to two years"
REPRESENTATIVE KAWASAKI objected.
COMMISSIONER GALVIN said that while the administration has been
thinking of two years with regard to altering the current 90-day
notice provision, it has not done any evaluations and is
therefore envisioning that these provisions would be established
through regulations, which would allow for comments from the
parties that the state is trying to attract into this
inducement. He said that at this point he is uncomfortable with
establishing a fixed time. The bill makes a clear statement
that the intent is to provide an inducement that is attractive
and meets the lessees' commercial concerns, and the length of
the notice period and the remainder of the commercial risk taken
on by the state will have to be addressed via regulations.
REPRESENTATIVE ROSES surmised, then, that the administration is
asking for some flexibility.
COMMISSIONER GALVIN said he is suggesting that it may not be in
the state's best interest to specify a number at this time
because the information upon which to make such a decision is
not available.
REPRESENTATIVE SEATON inquired whether the 90-day limitation for
switching between [royalty in-value (RIV) and royalty in-kind
(RIK)] is established in regulation or in the lease terms.
COMMISSIONER GALVIN stated that it is established in the lease
terms, though not in all leases. He said 90 days is used
because it is the most common timeframe. In response to a
question, he said that contractual terms are offered during a
particular lease sale, and are at the discretion of the DNR
commissioner within a certain statutory framework.
REPRESENTATIVE SEATON noted that a term of two years has been
used throughout many discussions. He requested that in future
presentations it be made clear that a negotiated timeframe may
be longer than two years.
REPRESENTATIVE SEATON withdrew Amendment 43.
COMMISSIONER GALVIN clarified that the details of the inducement
provision would be established via regulations and would be set
prior to the open season and not subject to individual
negotiations; after regulatory development and public comment
period, the DNR would decide what the notice timeframe should
be. He said he is only suggesting that there is not enough
information at this point to establish that timeframe, but it
will be established sometime before open season.
9:46:41 PM
MS. DAVIS noted a typographical error on line 15, page 22,
wherein the words, "incorporate into the lease terms of the
relevant regulation as fixed contract terms" ought to be
replaced with the words, "incorporate as fixed contract terms
the relevant revised regulatory provisions".
REPRESENTATIVE ROSES moved Amendment 44 as follows:
Page 22, line 15, after "and"
Delete "incorporate into the lease terms of the
relevant regulation as fixed contract terms"
Insert "incorporate as fixed contract terms the
relevant revised regulatory provisions"
There being no objection, Amendment 44 adopted.
9:49:04 PM
MS. DAVIS pointed out the addition of the words, "lessee's or
person's", on page 23, line 15 - proposed AS 43.90.310(c);
subsection (c), furthermore, no longer contains the words, "if
the Federal Energy Regulatory Commission does not have a policy
in effect that presumes that rolled-in rates apply to the
recovery of expansion costs for the project;".
REPRESENTATIVE SEATON moved Amendment 45, which read [original
punctuation provided]:
Page 23, line 17 After "AS 43.90.130(7)"
Delete "."
Insert "if the Federal Energy Regulatory
Commission does not have a policy in effect that
presumes that rolled in rates apply to the recovery of
expansion costs for the project;"
REPRESENTATIVE KAWASAKI objected.
A roll call vote was taken. Representatives Wilson, Seaton,
Roses, Edgmon, Gatto, and Johnson voted in favor of Amendment
45. Representatives Guttenberg and Kawasaki voted against it.
Therefore, Amendment 45 was adopted by a vote of 6-2.
9:52:23 PM
REPRESENTATIVE SEATON moved Amendment 46, which read [original
punctuation provided]:
Page 24, line 18 After "AS 43.90.130(7)"
Delete ";"
Insert "if the Federal Energy Regulatory
Commission does not have a policy in effect that
presumes that rolled in rates apply to the recovery of
expansion costs for the project;"
The committee took an at-ease from 9:53 p.m. to 9:57 p.m.
REPRESENTATIVE GUTTENBERG and WILSON objected to Amendment 46.
REPRESENTATIVE SEATON stated his opinion that the House Special
Committee on Oil and Gas struck a very good balance because if
the FERC has the presumption of rolled-in rates, the pipeline
entity must propose and support rolled-in rates. Amendment 46
says shippers only get the inducement if the FERC is presuming
rolled-in rates and then the shippers can argue whatever they
want; if the FERC changes and eliminates the presumption of
rolled-in rates, then the shippers are required to support
rolled-in rates. This affords some balance between the
inducement and the requirement for rolled-in rates, he opined,
because rolled-in rates are what [the legislature] is trying to
get to ensure exploration.
COMMISSIONER GALVIN conveyed the administration's opposition to
Amendment 46. He indicated that the language being added via
Amendment 46 is not the language that the administration started
with. The administration believes that if a company is going to
obtain the value of the upstream royalty and tax inducements,
then it should not be able to counter the state's interest on
the rolled-in rates. The state fought for the FERC presumption,
he said, because rolled-in rates are so valuable to the state.
The administration prefers keeping the existing language, he
advised, to preclude a company from making such a challenge.
A roll call vote was taken. Representatives Seaton, Roses, and
Johnson voted in favor of Amendment 46. Representatives Wilson,
Guttenberg, Edgmon, Kawasaki, and Gatto voted against it.
Therefore, Amendment 46 failed by a vote of 3-5.
REPRESENTATIVE GUTTENBERG moved to rescind the committee's
action in adopting action on Amendment 45.
REPRESENTATIVE SEATON objected.
A roll call vote was taken. Representatives Guttenberg, Edgmon,
Kawasaki, Wilson, and Gatto voted in favor of rescinding the
committee's action. Representatives Seaton, Roses, and Johnson
voted against it. Therefore, the committee's action in adopting
Amendment 45 was rescinded by a vote of 5-3.
10:05:21 PM
MS. DAVIS referred to proposed AS 43.90.320(b), and explained
that it no longer references the execution of a signed
certificate; this change removes a contractual element for the
tax exemption. Subsection (b) now references the inducement in
connection with the voucher for buyers. Proposed AS
43.90.320(c) now uses the words, "person claiming the exemption"
in place of the words, "exemption issued"; the words, "shall
agree" replaces the reference to a contractual agreement; and
the rebuttal presumption is no longer included.
COMMISSIONER GALVIN explained that eliminating the contractual
aspect eliminates durability, thereby eliminating the
expectation on the part of the party that is receiving the
inducement to know that it will have the value of the tax freeze
for the entire 10 years. As written, the intent of this change
was to promise an exemption in an amount equivalent to the
change in the tax rate, but the exemption can be removed at any
time by the legislature. The aforementioned was not included in
the original legislation and was not an intended inducement.
Throughout, the administration has acknowledged that what was
proposed would be subject to a court challenge and
constitutional challenge. Furthermore, no assurance was made
that it would be proven constitutional. The language in Version
K basically eliminates the concern of a constitutional challenge
because there is no binding effect on a future legislature, and
thus the question is whether it is of much value to the parties
that AGIA looks to induce. Mr. Galvin noted that it is a
significant change, which he characterized as a lessening of the
potential perceived value.
10:10:18 PM
MS. DAVIS, in response to a question, explained that this change
was not part of CSHB 177(O&G); it was incorporated into Version
K by the drafter because it was a change made in the Senate's
version of AGIA.
REPRESENTATIVE WILSON surmised that this change means there will
no longer be a 10-year period of certainty.
MS. DAVIS responded that it takes away the language that was in
the tax exemption that established the exemption as a matter of
contract, so that makes it changeable. In further response, she
said that it could be fixed through a conceptual amendment that
restores the language to what was in CSHB 177(O&G). She said
the conceptual amendment would apply to subsections (b) and (c),
[lines 9 and 15, respectively,] as well as to page 21, line 1.
CO-CHAIR GATTO asked what happens if the difference is less than
zero.
MS. DAVIS answered that the focus is not whether the number
would be zero, but whether it would be a negative number. The
goal is to ensure that the individual does not end up with a
credit that is carried forward. The issue is the tax rate in
effect at open season versus a future tax rate. If the tax rate
went down in the future as compared to what it was during open
season, this would prevent the difference from being considered
a tax credit that could be carried forward. Such language is
embodied in other tax statutes, she remarked.
10:14:11 PM
COMMISSIONER GALVIN, in response to questions, clarified that it
is the tax rate in effect "at the time" of open season. If a
22.5 percent tax rate was reduced to 20 percent just prior to
open season, then the effective tax rate reference point would
be 20 percent. If a 22.5 percent tax rate was increased to 25
percent just prior to open season, then the effective tax rate
reference point would be 25 percent.
MS. DAVIS further stated that it doesn't matter what the tax
rate is "before" open season, only what it is "at" open season.
The tax rate "at" open season is the reference point. Whatever
the tax rate is "at" open season is what can be banked on and
used in the licensee's commercial models.
COMMISSIONER GALVIN gave the following example: If the tax rate
is 25 percent "at" open season and it goes down to 20 percent,
the licensee then pays 20 percent. If the rate goes up to 23
percent, then the licensee pays 23 percent. But if it is goes
up to 26 percent, the licensee will receive a 1 percent credit.
REPRESENTATIVE ROSES inquired whether this locked-in rate is for
a successful open season or just an open season.
COMMISSIONER GALVIN answered that it is for the initial open
season for the licensed project.
MS. DAVIS further stated that it is the initial open season at
which that producer commits its gas.
COMMISSIONER GALVIN explained that it is the initial open season
for the licensed project - whatever gas is committed there. If
there is a subsequent open season and someone commits gas, even
if it is the first time that he/she commits gas, he/she does not
get the credit. An initial open season will be identified in
the license and will be clearly designated as the one that
receives [the locked in rate], he said.
REPRESENTATIVE ROSES expressed concern that if [the state] goes
to open season and no one commits and [the state then] goes to a
second open season, it only counts at time of commitment.
COMMISSIONER GALVIN, in response to another question, stated
that a commitment made at a second open season will receive no
inducement whatsoever. For example, if a party commits a
certain amount of gas during the first open season at a tax rate
of 20 percent and then the same party commits another amount of
gas at a second open season at which the tax rate has risen to
25 percent, only the amount of gas committed at the first open
season will receive the inducement of using the 20 percent tax
rate as the point of reference.
REPRESENTATIVE ROSES presented a scenario of no one committing
gas in the first open season and then three years later there is
a second open season. Does this mean no one will receive the
10-year fixed rate, he asked.
COMMISSIONER GALVIN replied yes.
10:19:49 PM
REPRESENTATIVE SEATON surmised that the policy call is whether
to say that taxes will be contractually obligated or be by
general law.
MS. DAVIS responded that the administration is creating an
exemption by general law which is AGIA, and the direction from
the legislature is to implement that general law by instructing
the commissioners to enter into contracts for those specific
provisions.
REPRESENTATIVE ROSES remarked that this is the result of the
committee's request to have the administration's stack of [54]
amendments put into a CS for the committee's consideration and
now the committee is dealing with having to take things out that
it might never have put in had the amendments been addressed
individually. The question is whether to have the CS conform
with the Senate Judiciary Standing Committee's language on this
issue or with what came out of the House Special Committee on
Oil and Gas.
10:21:50 PM
REPRESENTATIVE ROSES moved Conceptual Amendment 47, to replace
the language in proposed AS 43.90.320(b)-(c) with "the
appropriate language" from CSHB 177(O&G).
CO-CHAIR GATTO objected.
COMMISSIONER GALVIN clarified that Conceptual Amendment 47 would
not include the oil and gas section that was the subject of the
previous motion on the FERC presumption language.
MS. DAVIS pointed out that Conceptual Amendment 47 would also
not include the voucher language currently on page 24, lines 12-
14.
REPRESENTATIVE ROSES concurred.
MS. DAVIS inquired whether Representative Roses wished to also
include within Conceptual Amendment 47 the language from page
21, line 1, which says, "The inducement in AS 43.90.310 is
contractual".
REPRESENTATIVE ROSES clarified that Conceptual Amendment 47
provides that the language on page 24, lines 9-21 is to be
replaced with the "appropriate" language from CSHB 177(O&G) and
the change would need to be carried throughout the legislation
to include the referenced points.
REPRESENTATIVE GUTTENBERG objected. He commented that in many
ways this is just an argument regarding how to get to the same
place in the safest way. The administration has the opinion
that this can be done while others say that it cannot. He said
he would stick with the language currently in Version K because
there was a lot of work done to make other people feel secure.
REPRESENTATIVE SEATON posited that the Senate Judiciary Standing
Committee developed the Senate's language as the safest legal
way to implement the 10-year tax exemption.
CO-CHAIR GATTO expressed his confidence in those who purport the
constitutionality of a 10-year fixed rate.
10:26:25 PM
REPRESENTATIVE ROSES relayed his understanding that the
administration believes the language in Version K would not
actually lock in the rates for 10 years.
MS. DAVIS replied that this is correct with respect to the
changes that are currently in Version K because the contractual
underpinnings have been stripped out and because the purpose of
stripping out that language is to ensure no durability for 10
years. She relayed that what the administration is hearing from
the producers is that they are making a huge investment and can
assume the risks associated with the costs of materials and the
costs of the commodity, but that they do not want to assume the
risk that the fiscal regime can be changed. She said she could
not speak to whether they would be happy with 10 years.
REPRESENTATIVE ROSES voiced his concern that taking away the
inducement language and turning it into a potential incentive
diminishes the effectiveness of its intent.
10:29:59 PM
REPRESENTATIVE GUTTENBERG argued that with Version K's current
language there won't be a constitutional challenge because the
grounds for a challenge have been removed, whereas the language
in CSHB 177(O&G) guarantees a constitutional challenge. The
intent is to not have the bill be constitutionally challenged.
COMMISSIONER GALVIN opined that offering the inducement gives a
potential gas committer the ability to make a determination
regarding what the inducement's value is. One factor in
determining the value relates to the chance of the tax rate
increasing during the 10-year period. The second factor in
determining the value relates to how much the legislature can be
relied upon to keep that aspect of the promise. Supporting the
amendment, he said, adds another factor relating to whether this
can be counted on as being constitutional so that if the
legislature does change its mind, there will be protection
provided by the court. This amendment provides that last
stopgap.
CO-CHAIR GATTO stated that if he were a bidder he would consider
the existing language as an addition to his NPV.
REPRESENTATIVE GUTTENBERG advised that the industry knows both
the people and the geology of the state very well. In 2002
there was an 8.+ earthquake and the Trans-Alaska Pipeline moved
about 80 feet, which was right within the industry's disaster
planning parameters. The industry also knows the parameters of
how the state's people operate - since 1975 the tax rate has
gone down.
REPRESENTATIVE ROSES inquired whether, in the event of a
"political earthquake" causing a "shift", a future legislature
could undo this language and choose to have the fixed rate apply
for 30 years.
COMMISSIONER GALVIN replied yes.
REPRESENTATIVE ROSES asked whether [future] legislatures could
extend the tax rate to 30 years under the language in CSHB
177(O&G).
COMMISSIONER GALVIN answered yes, primarily because the party is
going to accept it as a contractual provision.
REPRESENTATIVE SEATON referred to testimony presented by the
producers wherein they indicated that they do not trust the
state and that unless the state also fixes their oil tax,
corporate income tax, property tax, and other things, they have
no security in the 10 years of the contract because the state
could just raise one of the other taxes. He said it seems to
him that the law of general applicability provides the
assurance.
A roll call vote was taken. Representatives Roses, Wilson, and
Johnson voted in favor of Conceptual Amendment 47.
Representatives Guttenberg, Edgmon, Kawasaki, Seaton, and Gatto
voted against it. Therefore, Conceptual Amendment 47 failed by
a vote of 3-5.
10:37:50 PM
MS. DAVIS pointed out that proposed AS 43.90.330 pertains to the
previously described inducement vouchers, which give gas buyers
the ability to indirectly partake in the resource inducements by
trading the vouchers to producers. Referring to proposed AS
43.90.400, she relayed that it now uses the term "matching
contributions" on page 25, lines 14, 24, and 26. In response to
a question, she noted that the Senate's version of the bill no
longer contains the sentence beginning on line 15 that states,
"Money appropriated to the fund may be spent for the purposes of
the fund without further appropriation.", or the sentence
beginning on line 18 that states, "Nothing in this subsection
creates a dedicated fund."
MS. DAVIS offered that proposed AS 43.90.420 now uses the
phrase, "court of the state of competent jurisdiction" as a
clarification of jurisdiction. Proposed AS 43.90.440, regarding
licensed project assurances, deals with payment of 300 percent
of the costs if the state gives preference to a competing
project. She noted that subsection (a) no longer uses the term,
"monetary treatment" because there was concern that this term
was too vague; subsection (a) now just refers to, "preferential
royalty or tax treatment or grant of state money". On line 19,
she noted the insertion of a comma after the word, "state" and
the addition of a new sentence on lines 25-26: "The payment
under this subsection is subject to appropriation."
CO-CHAIR GATTO inquired whether failure to make the
appropriation would be a contract violation.
REPRESENTATIVE ROSES responded yes.
MS. DAVIS remarked that the party could sue and get more money
than the first 300 percent of qualified expenditures.
COMMISSIONER GALVIN clarified that this only kicks in if
preferential treatment is given to a separate project, not if
there is a failure to appropriate.
10:41:34 PM
MS. DAVIS mentioned that the last sentence of proposed AS
43.90.440(a) now refers to, "all engineering designs, contracts,
permits, and other data related to the project", adding that the
drafter will be making conforming changes throughout the bill
where necessary. She further noted that this last sentence no
longer uses the words, "are owned or"; this ensures that what
the state is receiving is data and materials that were acquired
from the date the state issued the license and forward.
MS. DAVIS reported that proposed AS 43.90.440(b) now reads:
(b) In this section,
(1) "competing natural gas pipeline project"
means a project designed to accommodate throughput of
more than 500,000,000 cubic feet a day of North Slope
gas to market;
(2) "preferential royalty or tax treatment" does
not include
(A) the state's exercise of its right to
resolve disputes involving royalties and taxes;
(B) the state's exercise of its right to
modify royalties as authorized by law in effect on the
effective date of this section; or
(C) the benefits of a large project permit
coordinator authorized by a law in effect on the
effective date of this section.
MS. DAVIS offered that the language in paragraph (1) clarifies
that the project is delivering gas to market and is not just a
recycling project that keeps the gas on the North Slope, and
that the language in paragraph (2) clarifies what preferential
royalty or tax treatment does not include. This latter
clarification was made at the administration's request, she
said, because of concerns expressed by the industry that this
provision sets up an exclusivity situation; the new language
makes it clear that the state does not give up its right to
resolve disputes involving royalties and tax. Ms. Davis
explained that paragraph (2)(B) excludes the DNR's existing
authority under statutes to make changes to royalty rates
regarding field terminations and other challenging situations,
and that this is based on laws in effect as of the date of the
Act. She said that paragraph (2)(C) references DNR's existing
authority to provide large project coordination.
MS. DAVIS relayed that proposed AS 43.90.450(a) now reads in
part: "(a) A licensee may transfer all or part of the license,
including the rights and obligations arising under the license,
if, after publishing notice of the proposed transfer, providing
notice to the presiding officer of each house of the
legislature, and providing a period not less than 30 days for
public review and comment," This language addresses the concern
that there should be public and legislative notice when the
license is being assigned. She said that in proposed AS
43.90.450(b), on line 23, the word, "regarding" was inserted
after "AS 43.90.220". Proposed AS 43.90.450 now contains a new
subsection (d) that deals with the assignment of vouchers, and
puts voucher assignment on par with the assignment rights of a
resource owner having the resource inducements, she said.
Vouchers can only be assigned with transfer of the complete
capacity that was acquired by that buyer at the initial binding
open season.
10:46:45 PM
REPRESENTATIVE GUTTENBERG moved Conceptual Amendment 48, which
read [original punctuation provided]:
Page 28, line 12
add
Sec. 43.90.480
The Alaska Oil and Gas Conservation Commission and the
Department of Revenue shall jointly develop a report
that analyzes the oil production and state oil revenue
impacts of increasing the gas off take rates from
North Slope fields.
The report shall be delivered to the presiding
officers of each house of the legislature by March 1,
2008.
CO-CHAIR JOHNSON objected.
REPRESENTATIVE GUTTENBERG said Conceptual Amendment 48 asks the
AOGCC and the DOR for a report analyzing the impact of
increasing gas off-take rates on oil production. He said that
the AOGCC already does a British Thermal Unit (BTU) analysis and
this amendment asks the AOGCC to also do an analysis on revenue
in order to get a better understanding of what the state is
looking at in value for the off-takes. The March 1, 2008, date
is arbitrary. It is important to have a better understanding of
what is happening on the North Slope as far as value of the
product, he opined. The AOGCC will not do an off-take analysis
without a request and it cannot do the analysis without the
assistance of the DOR.
10:49:11 PM
COMMISSIONER GALVIN remarked that the issue of oil off-take
impact is highly complex. It is primarily an engineering
question about the impacts to the reservoir when it is
depressurized by taking off the gas and the ultimate impact that
this will have on long-term oil recovery. Within the DOR, he
said, there is no expertise that would allow such an analysis.
What is being attempted here is to make a distinction between
what the AOGCC evaluates when it exercises its statutory
obligations to prevent physical waste. The goal of the AOGCC is
to ensure that the maximum number of molecules gets pulled out
of the ground, regardless of how much those molecules are worth
and whether it will ultimately result in less value coming out
of the ground. It is recognized, he said, that the state may
reach a point where this analysis needs to include the economic
value of the resource when the decision is made as to how much
gas can be taken off. But, he emphasized, it is not the DOR
that will be making that evaluation. The administration is in
discussions with the AOGCC as to the proper way to request the
AOGCC to move forward with an analysis of the appropriate off-
take point. Conceptual Amendment 48 will not drive that any
further along, he opined, nor will it address the economic
issues that may ultimately need to be dealt with once more is
known.
COMMISSIONER GALVIN, in further response, clarified that the
AOGCC may have the expertise to do the analysis of economic
value, but it does not have the authority to do so.
REPRESENTATIVE GUTTENBERG withdrew Amendment 48.
CO-CHAIR GATTO inquired what enabling legislation is necessary
to obtain a report.
COMMISSIONER GALVIN reiterated that the administration is in the
process of evaluating that. The first step, he said, is to have
the AOGCC look at the physical waste in order to know whether
the next step of an economic analysis is necessary because the
physical evaluation may be sufficient enough. The economic
expertise may be within the DNR because, as it relates to the
state's oil and gas resources, the department conducts analyses
regarding management of the economic value of those resources.
He noted that there may be authorities within the DNR's unit
management prerogatives that would allow the department to do
this type of analysis as it pertains to particular units and the
treatment of the gas/oil relationship.
CO-CHAIR GATTO commented that the state does not want to destroy
the field and wants to ensure the longest field life and maximum
withdrawal of product.
10:56:52 PM
MS. DAVIS directed attention to proposed AS 43.90.900(15), and
noted that the definition for open season was modified and
tightened by referencing the specific standard that applies, and
defines what an open season has to be for an Alaska natural gas
pipeline; paragraph (15) reads:
(15) "open season" means the process that complies
with 18 C.F.R. Part 157, Subpart B (Open Seasons for
Alaska Natural Gas Transportation Projects);
MS. DAVIS referred to Section 2, proposed AS 36.30.850(b)(45),
and noted that the words, "whether a project is uneconomic" were
inserted in order to track the arbitration provisions.
Referring to Section 5 of Version K, she explained that it now
pertains to the first request for applications for the license.
Section 6 of Version K relates to expedited consideration of
court cases, and passage of this court rule change provision
requires a two-thirds vote of the House and Senate; this
provision requests the court system to give expedited
consideration to cases arising under proposed AS 43.90.
CO-CHAIR GATTO inquired whether the courts would ignore the
legislature despite a two-thirds vote.
COMMISSIONER GALVIN replied that this language is taken from the
redistricting statutes and that the court responded to the most
recent redistricting in a timely manner. He said that the
administration believes that this provision does add value
because it makes it clear that this is an issue of paramount
importance to the state, adding that he did not think there will
be a problem.
MS. DAVIS, after noting that Section 7 - the severability clause
- remains unchanged, relayed that Version K no longer contains
provisions pertaining to the gas utility revolving loan fund.
Section 8 of Version K is the immediate effective date clause.
11:02:22 PM
REPRESENTATIVE WILSON moved to report the proposed CS for
HB 177, Version 25-GH1060\K, Bullock, 4/24/07, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, CSHB
177(RES) was reported from the House Resources Standing
Committee.
REPRESENTATIVE ROSES commented that the amendments he offered
that did not pass were meant to provide flexibility, and
expressed his hope that the administration is 100 percent
correct in its belief that the bill already offers the
flexibility that is needed.
[CSHB 177(RES) was reported from committee.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 11:05 p.m.
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