Legislature(1997 - 1998)

03/26/1998 01:14 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
         HOUSE RESOURCES STANDING COMMITTEE                                    
                   March 26, 1998                                              
                     1:14 p.m.                                                 
                                                                               
                                                                               
MEMBERS PRESENT                                                                
                                                                               
Representative Bill Hudson, Co-Chairman                                        
Representative Scott Ogan, Co-Chairman                                         
Representative Beverly Masek, Vice Chair                                       
Representative Fred Dyson                                                      
Representative Joe Green                                                       
Representative William K. (Bill) Williams                                      
Representative Reggie Joule                                                    
                                                                               
MEMBERS ABSENT                                                                 
                                                                               
Representative Ramona Barnes                                                   
Representative Irene Nicholia                                                  
                                                                               
COMMITTEE CALENDAR                                                             
                                                                               
HOUSE BILL NO. 393                                                             
"An Act relating to contracts with the state establishing payments             
in lieu of other taxes by a qualified sponsor or qualified sponsor             
group for projects to develop stranded gas resources in the state;             
providing for the inclusion in such contracts of terms making                  
certain adjustments regarding royalty value and the timing and                 
notice of the state's right to take royalty in kind or in value                
from such projects; relating to the effect of such contracts on                
municipal taxation; and providing for an effective date."                      
                                                                               
     - HEARD AND HELD                                                          
                                                                               
(* First public hearing)                                                       
                                                                               
PREVIOUS ACTION                                                                
                                                                               
BILL: HB 393                                                                   
SHORT TITLE: DEVELOP STRANDED GAS RESOURCES                                    
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                   
                                                                               
Jrn-Date    Jrn-Page           Action                                          
02/11/98      2280     (H)  READ THE FIRST TIME - REFERRAL(S)                  
02/11/98      2281     (H)  OIL & GAS, FINANCE                                 
02/11/98      2281     (H)  2 FISCAL NOTES (DNR, REV)                          
02/11/98      2281     (H)  GOVERNOR'S TRANSMITTAL LETTER                      
02/19/98               (H)  O&G AT 11:00 AM CAPITOL 124                        
02/19/98               (H)  MINUTE(O&G)                                        
02/24/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
02/24/98               (H)  MINUTE(O&G)                                        
02/26/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
02/26/98               (H)  MINUTE(O&G)                                        
03/03/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/05/98               (H)  MINUTE(O&G)                                        
03/09/98      2578     (H)  RES REFERRAL ADDED                                 
03/10/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/10/98               (H)  MINUTE(O&G)                                        
03/12/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/12/98               (H)  MINUTE(O&G)                                        
03/19/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/19/98               (H)  MINUTE(O&G)                                        
03/24/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/24/98               (H)  MINUTE(O&G)                                        
03/24/98               (H)  O&G AT  5:00 PM CAPITOL 124                        
03/24/98               (H)  MINUTE(O&G)                                        
03/26/98               (H)  O&G AT 10:00 AM CAPITOL 124                        
03/26/98               (H)  MINUTE(O&G)                                        
03/26/98      2749     (H)  O&G RPT 1DP 5NR                                    
03/26/98      2750     (H)  DP: HODGINS; NR: BUNDE, OGAN,                      
                            ROKEBERG, BRICE, KEMPLEN                           
03/26/98      2750     (H)  2 FISCAL NOTES (DNR, REV) 2/11/98                  
03/26/98      2750     (H)  REFERRED TO RESOURCES                              
03/26/98               (H)  RES AT  1:00 PM CAPITOL 124                        
                                                                               
WITNESS REGISTER                                                               
                                                                               
REPRESENTATIVE MARK HODGINS                                                    
Alaska State Legislature                                                       
Capitol Building, Room 110                                                     
Juneau, Alaska  99801                                                          
Telephone:  (907) 465-3779                                                     
POSITION STATEMENT:  Sponsor of HB 393.                                        
                                                                               
WILSON CONDON, Commissioner                                                    
Department of Revenue                                                          
P.O. Box 110400                                                                
Juneau, Alaska 99811-0400                                                      
Telephone:  (907) 465-2300                                                     
POSITION STATEMENT:  Provided a presentation on HB 393.                        
                                                                               
JIM JOHNSON, Development Manger - Alaska Region                                
North America Production Division                                              
Phillips Petroleum Company                                                     
P.O. Box 1967                                                                  
Telephone:  (713) 669-2968                                                     
POSITION STATEMENT:  Provided testimony in support of HB 393.                  
                                                                               
ACTION NARRATIVE                                                               
                                                                               
TAPE 98-38, SIDE A                                                             
Number 001                                                                     
                                                                               
CO-CHAIRMAN SCOTT OGAN called the House Resources Standing                     
Committee meeting to order at 1:14 p.m.  Members present at the                
call to order were Representatives Hudson, Ogan, Masek, and Green.             
Representatives Williams, Joule and Dyson arrived at 1:15 p.m.,                
1:16 p.m., and 1:30 p.m., respectively.                                        
HB 393 - DEVELOP STRANDED GAS RESOURCES                                        
                                                                               
CO-CHAIRMAN OGAN announced the only order of business today would              
be House Bill Number 393, "An Act relating to contracts with the               
state establishing payments in lieu of other taxes by a qualified              
sponsor or qualified sponsor group for projects to develop stranded            
gas resources in the state; providing for the inclusion in such                
contracts of terms making certain adjustments regarding royalty                
value and the timing and notice of the state's right to take                   
royalty in kind or in value from such projects; relating to the                
effect of such contracts on municipal taxation; and providing for              
an effective date."                                                            
                                                                               
CO-CHAIRMAN OGAN called on Representative Mark Hodgins, sponsor of             
the bill.                                                                      
                                                                               
Number 019                                                                     
                                                                               
REPRESENTATIVE MARK HODGINS, Alaska State Legislature, stated the              
House Oil and Gas committee passed out CSHB 393(O&G), AS AMENDED,              
version 0-GH2006\L, this morning.  The committee held extensive                
public hearings and debates looking at what is best for Alaskans               
and Alaska.  The gist of the bill is to enable legislation to allow            
the administration to form a contract with a sponsor group that                
would go forward and look at building a trans-Alaska gas pipeline.             
It would bring the gas that is on the North Slope, approximately 37            
trillion cubic feet, down to tidewater.  The energy transmitted                
down the gas line would enable the Alaskans along the line and in              
Southcentral an abundance of energy over the next 60 to 70 years.              
Revenues would be created by the royalties and taxes earned.  The              
municipalities would also share in some of the taxes earned.  There            
would be thousands of jobs created.  The revenue source looked at              
on the North Slope indicates that there is approximately $150                  
billion worth of gas.  The state's take in terms of taxes is                   
approximately $12 billion.  The federal government's take in terms             
of taxes is approximately $26 billion.  The project right now is               
not profitable.  The bill takes a look at payments in lieu of                  
taxes.  "The idea being that if the state gives up a little bit, if            
the people defer some of the state taxes for a holiday of some                 
period of time, that...that would make the cash flow portion and               
thus the financing and the profitability of this pipeline a little             
bit better."  The state owns 12.5 percent of the resource.  It is              
not only a taxing and regulation authority but an owner of the                 
resources.  It is important to keep in mind that it is a for-profit            
project.  The producers, sponsors, companies, and individuals that             
would be involved in the project depend on a profit.  The people of            
the state are depending on the legislature to help the project come            
forward for the revenue, jobs and spin-offs it would create.                   
                                                                               
Number 106                                                                     
                                                                               
CO-CHAIRMAN OGAN asked Representative Hodgins whether the $12                  
billion in state taxes would be royalties and taxes.                           
                                                                               
Number 116                                                                     
                                                                               
REPRESENTATIVE HODGINS replied it would be taxes.                              
                                                                               
CO-CHAIRMAN OGAN asked Representative Hodgins whether it would be              
royalties and taxes combined.                                                  
                                                                               
REPRESENTATIVE HODGINS replied it would be taxes.  Royalties would             
be above taxes.  The project has the potential of going for 30 to              
50 years.  Taxes would be ad valorem, severance, business, and etc.            
                                                                               
Number 136                                                                     
                                                                               
REPRESENTATIVE JOE GREEN referred to page 2, line 14, and asked                
Representative Hodgins whether the phrase "at least the next                   
decade" would mesh with the expected timing of the gas pipeline                
now.  Earlier, the timing was expected to be 2002 and 2003, then it            
moved to 2006 and 2007.  He also wondered whether the concept is to            
give some deference to severance taxes and royalties without                   
specifying it in the bill.                                                     
                                                                               
Number 171                                                                     
                                                                               
REPRESENTATIVE HODGINS replied yes the taxes need to be considered.            
The cost of the gas line is not known.  The next step would be for             
the sponsor group to come forward with some preliminary engineering            
ideas, time lines, and costs at which point the taxation situation             
could be looked at.  The bill would enable an idea for taxes and               
for the administration to sit down and look at the alternatives                
then bring them back to the legislature for ratification.  In terms            
of the ten-year period of time, testimony from producers has                   
indicated that they could be as early as 2007 or 2008, if                      
everything goes without flaws.  It would be a little bit later                 
before gas actually flows down the line and the cash registers                 
start ringing.                                                                 
                                                                               
Number 195                                                                     
                                                                               
REPRESENTATIVE GREEN stated the purpose of the bill is to say, "Hey            
state these are the things that we need to be looking at in order              
to--I mean conceivably things that will happen in order to get this            
line built so that the state ultimately will gain from the royalty             
it owes and the jobs it'll create and all those good things that               
that major project would bring.  But, there's nothing in here that             
we're committing to--neither--we have no schedule, we don't talk               
about it...It's just conceptually, we may have to give a little in             
royalty, we may have to give a little in taxes, defer--eliminate               
them for a while, take a holiday.  It's a wake up call rather than             
a commitment."                                                                 
                                                                               
Number 211                                                                     
                                                                               
REPRESENTATIVE HODGINS replied, "Yes."  This is enabling                       
legislation to allow the administration to go forward with                     
negotiations.  A proposed contract would be submitted to the                   
legislature for ratification or be sent back for further                       
negotiations.                                                                  
                                                                               
Number 218                                                                     
                                                                               
CO-CHAIRMAN OGAN entertained a motion to adopt CSHB 393(O&G), with             
the attached amendment (version 0-GH2006\L).                                   
                                                                               
Number 228                                                                     
                                                                               
REPRESENTATIVE BEVERLY MASEK made a motion to adopt CSHB 393(O&G),             
version 0-GH2006\L, with the attached amendment, for consideration.            
There being no objection, it was so adopted.                                   
                                                                               
Number 234                                                                     
                                                                               
CO-CHAIRMAN OGAN called on Commissioner Wilson Condon from the                 
Department of Revenue.                                                         
                                                                               
Number 277                                                                     
                                                                               
WILSON CONDON, Commissioner, Department of Revenue, stated the                 
original bill, HB 393, was introduced by Governor Tony Knowles.                
The House Special committee on Oil and Gas spent several weeks                 
working on the bill and the department has worked closely with                 
Representative Hodgins's staff to prepare a committee substitute.              
The proposed committee substitute is designed as a framework to                
bring back to the legislature the issue of which fiscal system                 
would be appropriate to develop the North Slope gas resource.  He              
referred to a flow chart and stated there are three key elements.              
What is stranded gas, what is a qualified project, and what does it            
take to be a qualified sponsor of a qualified project.  Stranded               
gas is uneconomic or uncompetitive to develop.  A project that                 
would develop and market 500 billion cubic feet (bcf) of stranded              
gas over a 20-year period and make it available to local                       
communities, if appropriate and economical.  A qualified sponsor is            
someone with an intent to own an equity interest in the project:               
own some or all of the stranded gas, have a right to purchase some             
or all of the stranded gas, have the major permits necessary to                
construct the project, or have the financial strength to build the             
project.                                                                       
                                                                               
COMMISSIONER CONDON stated the bill would authorize and require the            
executive branch to put together a fiscal system constructed around            
the notion of payments in lieu of taxes.  The payments would then              
come back before the legislature in the form of a contract and                 
piece of authorizing legislation.  It would not authorize the                  
executive branch to sign it, but rather instructs the executive                
branch on how to put together a proposal to bring back to the                  
legislature.  The legislature would either authorize or reject the             
proposal.                                                                      
                                                                               
COMMISSIONER CONDON stated someone interested in developing                    
stranded gas would put together a proposal and apply.  The proposal            
would come before the commissioners of revenue and natural                     
resources to determine whether it actually is a project and not a              
"fly-by-night scheme."  The commissioner of revenue must answer the            
following questions:  Is the gas stranded?  Do the proposers meet              
the standards for a qualified sponsor?  Is the proposal a qualified            
project?  The commissioner of natural resources must answer the                
following questions:  Does the project plan provide for diligent               
development?  Is there a satisfactory plan for providing gas to                
local communities?  If the answer to the five questions is yes,                
then the commissioners would be responsible for putting together               
the package to come before the legislature.  The commissioner of               
revenue would put together a fiscal package with respect to the                
payments in lieu of taxes, Alaska hire, gas for local communities,             
royalty arrangements, and sharing of revenues generated with local             
communities.  The bill would also authorize the establishment of               
the Municipal Advisory Group.  The commissioner of revenue would               
notify the group with respect to the development of municipal                  
revenue sharing terms and issues affecting them during                         
negotiations.  The commissioner of natural resources would                     
negotiate the terms of the royalties, provide a method for valuing             
the gas for royalties, and modify the rights of the state to take              
royalties in-kind rather than in-value.                                        
                                                                               
COMMISSIONER CONDON stated when the commissioner of revenue                    
completes the contract, it would be made open for review by the                
public and legislature.  There would be a period of legislative                
review before being submitted for final review and approval.  After            
the initial review, there would be an opportunity to make                      
modifications, if necessary.  The proposal would then be submitted             
to the governor.  The governor would then submit the proposed                  
contract, along with legislation, to the legislature.  The                     
legislature would then determine whether to approve it or not.                 
                                                                               
Number 458                                                                     
                                                                               
CO-CHAIRMAN OGAN announced Representative Dyson joined the meeting             
some time ago.                                                                 
                                                                               
Number 462                                                                     
                                                                               
REPRESENTATIVE GREEN asked Commissioner Condon whether there would             
be a similar flow chart for the environmental consequences of                  
another line.  Does it provide for an advisory position?                       
                                                                               
Number 470                                                                     
                                                                               
COMMISSIONER CONDON replied it is a business proposition.  It is               
meant to provide a responsible framework for a business deal.  The             
state would still have to do its environmental job.                            
                                                                               
Number 482                                                                     
                                                                               
REPRESENTATIVE GREEN asked Commissioner Condon what would happen if            
snags were hit along the way.                                                  
                                                                               
Number 489                                                                     
                                                                               
COMMISSIONER CONDON replied it would move along irrespective of                
whatever kind of environmental difficulties did or did not arise.              
It is a process to develop a set of proposed economic arrangements.            
                                                                               
COMMISSIONER CONDON noted that Commissioner John Shively is                    
participating via teleconference in Anchorage in order to answer               
any questions in regards to the royalties.                                     
                                                                               
Number 504                                                                     
                                                                               
REPRESENTATIVE BILL WILLIAMS asked Commissioner Condon whether the             
legislative review process would be timed while the legislature is             
in session.                                                                    
                                                                               
COMMISSIONER CONDON replied, "We would have to do that, yes."                  
                                                                               
Number 510                                                                     
                                                                               
REPRESENTATIVE MASEK referred to page 4, line 8, and asked                     
Commissioner Condon to talk about the phrase "establishing a fiscal            
regime that reduces the risks and improves the economies of a                  
stranded gas development project".                                             
                                                                               
Number 518                                                                     
                                                                               
COMMISSIONER CONDON replied Dr. Pedro H. van Meurs concluded, as               
part of a consulting study, that the fiscal system the state has in            
comparison to other people's resources is relatively uncompetitive             
because it is front-end loaded:  the state takes its share out of              
the front end.  In terms of improving the economics, Dr. van Meurs             
recommended that the state try to take its share of the rent in the            
later years thereby sharing in the risks when the economics are not            
good.  It tends to be a more stable arrangement because if things              
turn out to be good then the state gets a share of the "bonanza,"              
people feel they have gotten a fair deal, and there isn't the                  
political pressure to change the fiscal system over the life of the            
project.  It increases the willingness of those to become investors            
and lowers the threshold to make an investment in the project.                 
                                                                               
Number 563                                                                     
                                                                               
REPRESENTATIVE MASEK stated Commissioner Condon did not answer her             
question.  She wondered how much would the state give away in taxes            
and royalties to reduce the risk and improve the economics.                    
                                                                               
Number 568                                                                     
                                                                               
COMMISSIONER CONDON replied the bill would not give anything away.             
The bill would provide a framework that would require the executive            
branch to come back with a proposal that might or might not give               
something away.  It would require the executive branch to respond              
to an application and bring a proposal to the legislature for                  
consideration.                                                                 
                                                                               
Number 582                                                                     
                                                                               
REPRESENTATIVE HODGINS stated Dr. van Meurs has indicated there                
would be a 2 percent reduction on the state's side.  If that was               
the case, the state is looking at a $12 billion take totaling $260             
million to $270 million.  "You have to keep in mind that the                   
economics of this project through the ramp-up process and some of              
the testimony that we had over the year has been that this project             
is very, extremely cost heavy on the front end.  And, one of the               
considerations would be--return on investment would be--private                
sector would be looking at.  The return on the investment is real              
susceptible to the front-end cost.  The project of laying out the              
amount of dollars it would take to build this line, and it has been            
suggested approximately $15 billion at this point, the amount of               
money that would be needed to...to...to start this project is                  
further complicated by the taxes that would be involved in the                 
front end and so by deferring those tax holiday or to a later date             
when the cash registers starts, when the gas actually starts                   
flowing, when the revenues flow, enables this project to go                    
forwards.  The way this project is presented now, we will not have             
a project.  If it's at $15 billion the economy is such that there's            
better investments for these investors throughout the world.  We               
would not have a project and then our gas would indeed be stranded             
up on the North Slope as the state's share."                                   
                                                                               
Number 608                                                                     
                                                                               
REPRESENTATIVE MASEK stated the way the section is written would               
give quite a bit of power to the executive branch to develop and               
implement a contract to recover and transfer the natural gas.                  
                                                                               
Number 616                                                                     
                                                                               
CO-CHAIRMAN BILL HUDSON referred to the Municipal Advisory Group,              
and asked whether it would include all of the communities along the            
line or within a given region.  He wondered whether the gas would              
be made available to those communities as part of the overall                  
contract.                                                                      
                                                                               
Number 626                                                                     
                                                                               
REPRESENTATIVE HODGINS replied the language in the bill indicates              
economic proximity.  For example, a spur line drawn to Cook Inlet,             
and a substation to service Valdez, would be taken up in economic              
proximity and would be available under the intent language in the              
bill.                                                                          
                                                                               
CO-CHAIRMAN HUDSON stated the revenue sharing would be to offset               
the burden of the cost to the communities along the line.                      
                                                                               
REPRESENTATIVE HODGINS stated the "pipeline mayors" have indicated             
that they are comfortable with getting the project to go forward.              
They have also indicated their needs and willingness to accept some            
of the socioeconomic impacts of the project - more schools, more               
services, more people coming to their communities - as long as they            
can recoup deferred dollars in the form of a tax holiday, for                  
example, they would be very, very supportive of the project.                   
                                                                               
Number 657                                                                     
                                                                               
CO-CHAIRMAN HUDSON stated the gas belongs to all of the people of              
Alaska, therefore, he would like to see an equitable sharing of the            
resource.  Certainly, some communities would get wonderful energy              
and fuel benefits.  He would like to see Kodiak and Southeast be               
considered in the final analysis, if revenue sharing is one of the             
major elements of the contractual relationship.                                
                                                                               
Number 665                                                                     
                                                                               
REPRESENTATIVE REGGIE JOULE stated so much of resource development             
is tied to the Asian markets.  He wondered whether those markets               
have been looked at and what type of impact would they have.                   
                                                                               
Number 673                                                                     
                                                                               
REPRESENTATIVE HODGINS stated Dr. van Meurs testified that the                 
economic turmoil in the East would not negatively impact but                   
positively impact Alaska as a supplier of liquid natural gas to                
Japan, Korea and Taiwan.                                                       
                                                                               
Number 689                                                                     
                                                                               
COMMISSIONER CONDON stated, if the project was in place today, the             
price of gas would be low.  Nobody would do a project like this                
without entering into it for the long-term, however.  The delivered            
price would likely be tied in to the price for....                             
                                                                               
TAPE 98-38, SIDE B                                                             
Number 000                                                                     
                                                                               
COMMISSIONER CONDON continued.  Low prices would have a revenue                
effect on the project.  There are some competitors that are badly              
affected by the current economic difficulties in Asia, particularly            
Indonesia because it is a source of gas and a competitor.                      
                                                                               
Number 022                                                                     
                                                                               
REPRESENTATIVE WILLIAMS asked Commissioner Condon how he came up               
with the qualifications for a qualified sponsor or qualified                   
sponsor group.                                                                 
                                                                               
Number 038                                                                     
                                                                               
COMMISSIONER CONDON replied the intent of the qualifications is to             
ensure that the sponsor or group sponsor is serious and has the                
economic strength and interest to put a project together.                      
                                                                               
REPRESENTATIVE WILLIAMS asked Commissioner Condon, whether a                   
sponsor or group sponsor would have to have a net worth of at least            
33 percent of the estimated cost, in order to buy 10 percent of the            
stranded gas.                                                                  
                                                                               
COMMISSIONER CONDON replied, "No."  A qualified sponsor or                     
qualified sponsor group would have to intend to own an equity                  
interest in the project and meet one or more of the additional                 
criteria spelled out in the bill.                                              
                                                                               
Number 085                                                                     
                                                                               
REPRESENTATIVE GREEN asked Commissioner Condon whether he sees                 
anything to inhibit the state taking gas in-kind.                              
                                                                               
COMMISSIONER CONDON replied the bill authorizes the state to limit             
and change its right to take gas in-kind.                                      
                                                                               
REPRESENTATIVE GREEN replied the bill does not inhibit it, but                 
future negotiations might.                                                     
                                                                               
Number 123                                                                     
                                                                               
REPRESENTATIVE MASEK referred to page 5, lines 20-21, "(3) use                 
reasonable efforts to contract with qualified Alaska businesses                
when their performance is competitive with regard to price,                    
quality, and availability." , and asked what criteria would be used            
to determine whether an Alaskan company is eligible to receive                 
special treatment for subcontracting.                                          
                                                                               
Number 140                                                                     
                                                                               
COMMISSIONER CONDON stated the provision is a statement of intent              
by the legislature in terms of what it wants to see accomplished.              
There is a provision dealing with Alaska hire, and "Alaska                     
business" is defined on pages 14-15.                                           
                                                                               
Number 175                                                                     
                                                                               
REPRESENTATIVE HODGINS stated the constitutionality of local hire              
is handled better through a contract instead of legislation.  "We              
talked about the definition and the definition we can use anything             
we want to and that's just a way of us keeping score as to which               
companies are adhering more to our wishes.  And, then we can bring             
political pressure or individual pressure on those companies to                
raise the amount of what we feel are Alaskan residents to their                
employment schemes, for their employment roles.  Basically,                    
constitutionally we have a difficult time of...of putting the                  
threshold too low and excluding a lot of folks.  I think our best              
and probably most capable way of making sure that Alaskan are                  
employed is the responsibility that I think the Oil and Gas                    
committee will take on as far as making certain of the training                
requirements that the...the job specialties, the requirements that             
the employer will have for employees and making sure that we have              
the trained Alaskans to...to fulfill those jobs.  Other                        
than...other than that it's very difficult to exclude somebody from            
Washington state or other states that come up here to work.  We've             
talked about a lot of different schemes.  Basically, the best one              
is having a well trained Alaskan workforce.  And, I believe that               
will be the responsibility of the legislature to make sure that                
that happens."                                                                 
                                                                               
Number 212                                                                     
                                                                               
REPRESENTATIVE MASEK stated she would still like to know what                  
criteria would be used in the intent language to decide who is                 
competitive and eligible to receive a contract in reference to a               
reasonable effort - "(3) use 'reasonable efforts' to contract with             
qualified Alaska businesses when their performance is competitive              
with regard to price, quality, and availability.", page 5, lines               
20-21.                                                                         
                                                                               
Number 234                                                                     
                                                                               
COMMISSIONER CONDON stated the term "reasonable" is often used by              
the legislature in many different contexts.  The language should be            
changed, if the legislature has any other kind of effort in mind.              
                                                                               
Number 255                                                                     
                                                                               
CO-CHAIRMAN OGAN referred to page 15, line 21, "(ii) resident                  
fishing, hunting, or trapping license under AS 16;", and asked                 
Commissioner Condon whether the language should read "qualifies for            
a license and domiciled for 12 months."  It is a pretty tight                  
description of a resident.                                                     
                                                                               
Number 268                                                                     
                                                                               
COMMISSIONER CONDON replied it would be a good change.  Currently,             
it means that a person would have to get a license in order to get             
a job.  It would not change the legal requirement of reporting who             
is or isn't a resident, but it would remove a potential problem.               
                                                                               
Number 293                                                                     
                                                                               
REPRESENTATIVE HODGINS asked Co-Chairman Ogan what his intention is            
for the bill.                                                                  
                                                                               
CO-CHAIRMAN OGAN replied he would like to move it out next week.               
                                                                               
REPRESENTATIVE HODGINS replied the timeliness of getting the bill              
out is very important in order to get it through the House Finance             
committee as part of the budget process.  It was worked extensively            
in the House Oil and Gas committee.                                            
                                                                               
Number 315                                                                     
                                                                               
CO-CHAIRMAN OGAN replied the bill is a priority of his.                        
                                                                               
CO-CHAIRMAN OGAN asked Commissioner Condon what would happen if the            
legislature rejected the contract negotiated by the administration.            
                                                                               
Number 331                                                                     
                                                                               
COMMISSIONER CONDON replied the bill does not have any provision               
that requires a report to the legislature, until a tentative set of            
arrangements have been agreed upon.  There is an opportunity to                
make changes to the contract before it goes to the legislature.                
                                                                               
CO-CHAIRMAN OGAN asked Commissioner Condon, if the legislature                 
voted to not go ahead with the contract, would the administration              
renegotiate.                                                                   
                                                                               
COMMISSIONER CONDON replied it might, but the bill does not address            
that.                                                                          
                                                                               
CO-CHAIRMAN OGAN stated it would be prudent for the bill to address            
that.                                                                          
                                                                               
COMMISSIONER CONDON replied it would not necessary.  It would not              
be precluded, but it does not need to be required.                             
                                                                               
Number 358                                                                     
                                                                               
CO-CHAIRMAN OGAN referred to page 11, Section 43.82.210, (1) - (9),            
and stated it gives the commissioner of revenue the ability to                 
adjust oil and gas production taxes, oil and gas exploration taxes,            
oil and gas pipeline transportation property taxes, oil and gas                
conservation taxes, Alaska net income taxes, municipal sales and               
use taxes, municipal special assessments, comparable taxes or                  
levies imposed by the state or municipality after the effective                
date, and other state or municipal taxes.  This is a heck of a lot             
of authority delegated to the commissioner of revenue, even though             
the legislature has to sign off on it.  He asked Commissioner                  
Condon why he should be given all that authority, and why is the               
language talking about "oil" and gas taxes when this is a gas bill.            
                                                                               
Number 398                                                                     
                                                                               
COMMISSIONER CONDON replied the bill would no authorize the                    
modification of any oil taxes.  According to the bill drafters, it             
is the product of how the bill needs to be drafted.  "Oil and gas"             
is the proper name used in the chapters that authorize these taxes.            
Sections 43.82.020 and 43.82.210 only authorize the development of             
a proposal for stranded gas.  In terms of the commissioner's                   
authority, it is only a to-do list of things to consider.  It does             
not give the commissioner authority to change or excuse anybody                
from any of the taxes.                                                         
                                                                               
Number 434                                                                     
                                                                               
CO-CHAIRMAN OGAN asked Commissioner Condon to state for the record             
that there is nothing in the bill that would give him the authority            
to consider changing taxes on oil.                                             
                                                                               
Number 437                                                                     
                                                                               
COMMISSIONER CONDON replied, as a citizen of the state, he has the             
authority to consider changing the taxes on oil, but it won't                  
amount to a "hill of beans" just considering it.  He doesn't have              
the authority to change taxes on anything under the bill and he is             
not instructed by the bill to come before the legislature with a               
proposal to change oil taxes.                                                  
                                                                               
Number 445                                                                     
                                                                               
CO-CHAIRMAN OGAN stated the language gives the commissioner the                
expressed authority to negotiate oil and gas taxes.                            
                                                                               
COMMISSIONER CONDON replied, in his opinion, there is no ambiguity.            
It does not authorize a proposal on oil taxes.  It happens to be               
the proper name used in the chapters pertaining to taxes and gas.              
                                                                               
COMMISSIONER CONDON stated, "No, it doesn't have a damn thing to do            
with oil, except that its got the three letter word that says 'oil'            
there."                                                                        
                                                                               
CO-CHAIRMAN OGAN stated he knows the intent of the bill doesn't                
deal with oil, but a lawyer somewhere might decide that it does                
mean oil.                                                                      
                                                                               
COMMISSIONER CONDON replied he would flunk his bar exam then.                  
                                                                               
Number 483                                                                     
                                                                               
CO-CHAIRMAN HUDSON asked Commissioner Condon whether there could be            
a change in oil taxes without the legislature making them.                     
                                                                               
COMMISSIONER CONDON replied, "You're absolutely right."  That is               
also true of gas taxes.                                                        
                                                                               
CO-CHAIRMAN HUDSON asked Commissioner Condon whether that is true              
for any other monetary term because in essence it is an                        
appropriation, the purpose of the legislature.                                 
                                                                               
COMMISSIONER CONDON replied, "Correct."                                        
                                                                               
Number 495                                                                     
                                                                               
REPRESENTATIVE WILLIAMS referred to page 16, line 17, and wondered             
whether there is anyway to loop the interest to the qualifications             
under Section 43.82.110.                                                       
                                                                               
COMMISSIONER CONDON replied yes it is possible.                                
                                                                               
REPRESENTATIVE WILLIAMS asked Commissioner Condon whether there is             
any problem with that.                                                         
                                                                               
COMMISSIONER CONDON repled, "I don't believe so."  A qualified                 
sponsor is one or more enterprise applying to put together the                 
project.  The minimum qualifications apply to the entire group.                
This says subject to the contract and with the approval of the                 
commissioner parties can be added to or taken out of the sponsor               
group.  It is common in all kinds of commercial deals.                         
                                                                               
REPRESENTATIVE WILLIAMS stated he is a little bit leery of this and            
will look at it further.                                                       
                                                                               
Number 543                                                                     
                                                                               
CO-CHAIRMAN OGAN referred to page 25, line 18, "If a provision of              
this chapter conflicts with another provision of state or municipal            
law, the provision of this chapter governs."  This is the reason               
why he is concerned about it affecting oil and gas.  He asked                  
Commissioner Condon whether it is fairly standard.                             
                                                                               
COMMISSIONER CONDON replied, "Yes."  He said, "If you're passing a             
piece of legislation that you want to establish the rules of the               
game, you want to make sure there isn't something that's gonna come            
in from a (indisc.) that will change those rules."                             
                                                                               
Number 558                                                                     
                                                                               
CO-CHAIRMAN OGAN stated the bill gives the commissioner of revenue             
a lot of authority to negotiate contracts that would affect                    
municipalities.  He asked Commissioner Condon what process does he             
envision to address the concerns of municipalities.                            
                                                                               
Number 569                                                                     
                                                                               
COMMISSIONER CONDON replied the bill would establish a Municipal               
Advisory Group.  The commissioner of revenue would be required to              
keep the group informed, and seek its advise in regards to                     
municipal sharing.                                                             
                                                                               
CO-CHAIRMAN OGAN called on Jim Johnson from Houston.                           
                                                                               
Number 589                                                                     
                                                                               
JIM JOHNSON, Development Manger - Alaska Region, North America                 
Production Division, Phillips Petroleum Company, testified via                 
teleconference in Texas.  Phillips has been interested in                      
evaluating opportunities to participate in a North Slope gas                   
project including a trans-Alaska gas pipeline system, liquid                   
natural gas facilities, and shipping elements.  In that regard,                
Phillips is supportive of this legislation.  There is potential for            
commercialization of North Slope gas.  The progress will require               
the evaluation of the cost of a gas line, marketing arrangements,              
tax and regulatory structures.  The bill provides a means to                   
address the tax and regulatory structures.  It enables the issues              
to be addressed and provides the extra push for the project.                   
                                                                               
CO-CHAIRMAN OGAN asked the committee members to familiarize                    
themselves with the bill for the next meeting.  It is an important             
issue.                                                                         
                                                                               
Number 635                                                                     
                                                                               
REPRESENTATIVE HODGINS stated it is important to keep in mind that             
this is enabling legislation to allow a contract to go forward.                
Concerns of any authority given to the administration or small                 
group of folks are generally well founded, but in this case                    
anything produced will have to come back to the legislature for                
ratification.  "I'm not sure that the concerns that have been                  
voiced by some members of this body as to the absolute power that              
would result--I don't believe those concerns are valid for the fact            
that this contract would have to come back to this body for                    
ratification.  And, I think it's important to remember that if all             
60 of us were involved in the negotiation process we wouldn't come             
up with a contract.  And the basis of this enabling legislation is             
to look at some alternatives to determine if this is going to be a             
cost effective job, if this is going to be profitable.  If it is               
not going to be profitable, it is not gonna be built.  If it's not             
built, the state's share of the natural gas on the North Slope will            
stay there till some other technology comes along or until some                
time in the near or distant future.  To give an idea, right now the            
North Slope has proven to be approximately 37 trillion cubic feet.             
If we can get this pipeline online and get this project I think                
we'll find that there will be two to three times that amount of                
natural gas up there.  To give you an idea as to what 37 trillion              
cubic feet would do for the people of the state of Alaska, our                 
share of that thru the royalty percentage would be approximately 4             
trillion cubic feet.  Four trillion cubic feet is more gas than has            
been used in Cook Inlet since its inception.  I can guarantee you              
that the jobs that have been created in the Cook Inlet basin from              
the use of natural gas, the export of it, the heating of the                   
Southcentral Alaska has been extremely beneficial.  Extremely                  
beneficial to Alaskans.  I know that the impact that we're going to            
be talking about will impact virtually every community in the                  
state, but we must remember that if we load too much dollar amount             
for a revenue dedication on the front end of this project, this                
project will probably never get built.  And, we can hand a lot of              
socioeconomic impacts on it, we can hand a lot of revenue sharing,             
we can hang a lot of other items that will cost dollars that will              
actually stop this project from going forward.  The decision that              
we have to make at this level is decide if we want to see this                 
project continue on any further.  If we don't want to see this                 
project continue on any further, then I would suggest that we no do            
anything with this bill.  If there is a hope and a pray and a                  
chance that this project can go and it will be profitable not only             
for the business that are involved in it, but for the people of                
Alaska then I think it's our direct responsibility to carry forward            
and search that out.  There is no hidden agenda in this enabling               
legislation.  It's simply go forward, make a contract, come back,              
we'll say yes or no.  If we say no then you'd better go forward and            
do another one.  And that's the simplicity of it and to draw any               
other conclusions tends to fog the real essence of the contract                
with unknown fears and speculation of event that...that probably               
will not happen or could not happen.  I would urge you to take a               
hard look at this.  Make the changes that you deem are appropriate.            
Take the testimony that is important to the people of the state of             
Alaska and with due diligence go forward with this piece of                    
legislation at your earliest convenience."                                     
                                                                               
REPRESENTATIVE MASEK stated it is important to look at what the                
state can do, but it is not necessary to hurry because of the price            
of oil today.  The resources are valuable to the state and there               
will probably be some development in the future.  She is not                   
comfortable with the bill.  Many changes are needed.  She is not               
sure whether this is the time for it.  She doesn't want the state              
to rush into something that it may regret.                                     
ADJOURNMENT                                                                    
                                                                               
Number 685                                                                     
                                                                               
CO-CHAIRMAN OGAN adjourned the House Resources Standing Committee              
meeting at 2:45 p.m.                                                           

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