Legislature(2003 - 2004)

05/07/2003 01:40 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                          May 7, 2003                                                                                           
                           1:40 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Hugh Fate, Chair                                                                                                 
Representative Beverly Masek, Vice Chair                                                                                        
Representative Carl Gatto                                                                                                       
Representative Cheryll Heinze                                                                                                   
Representative Bob Lynn                                                                                                         
Representative Carl Morgan                                                                                                      
Representative Kelly Wolf                                                                                                       
Representative David Guttenberg                                                                                                 
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CONFIRMATION HEARINGS                                                                                                           
                                                                                                                                
Board of Fisheries                                                                                                            
                                                                                                                                
     Floyd F. Bouse, D.D.S. - Fairbanks                                                                                         
     Robert (Ed) Dersham - Anchor Point                                                                                         
                                                                                                                                
     - CONFIRMATION(S) ADVANCED                                                                                                 
                                                                                                                                
HOUSE BILL NO. 267                                                                                                              
"An Act relating  to the Alaska Railroad;  authorizing the Alaska                                                               
Railroad Corporation  to provide  financing for  the acquisition,                                                               
construction, improvement,  maintenance, equipping,  or operation                                                               
of  facilities for  the transportation  of natural  gas resources                                                               
within and  outside the state  by others; authorizing  the Alaska                                                               
Railroad Corporation to issue bonds  to finance those facilities;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
     - MOVED HB 267 OUT OF COMMITTEE                                                                                            
                                                                                                                                
HOUSE BILL NO. 277                                                                                                              
"An Act  relating to the  powers of the Regulatory  Commission of                                                               
Alaska in  regard to intrastate pipeline  transportation services                                                               
and pipeline facilities, to the rate  of interest for funds to be                                                               
paid by pipeline shippers or carriers  at the end of a suspension                                                               
of  tariff   filing,  and  to  the   prospective  application  of                                                               
increased  standards on  regulated  pipeline utilities;  allowing                                                               
the  commission  to  accept  rates   set  in  conformity  with  a                                                               
settlement agreement between  the state and one  or more pipeline                                                               
carriers and  to enforce the  terms of a settlement  agreement in                                                               
regard  to  intrastate  rates; and  providing  for  an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 246                                                                                                              
"An  Act relating  to the  limitation  on upland  acreage that  a                                                               
person may take  or hold under oil and gas  leases; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 267                                                                                                                  
SHORT TITLE:AK RAILROAD BONDS FOR NAT.GAS TRANSPORT                                                                             
SPONSOR(S): REPRESENTATIVE(S)KOHRING                                                                                            
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/15/03     0985       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/15/03     0985       (H)        O&G, RES, FIN                                                                                
04/16/03     1018       (H)        COSPONSOR(S): CRAWFORD                                                                       
04/24/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/24/03                (H)        Moved Out of Committee                                                                       
                                   MINUTE(O&G)                                                                                  
04/25/03     1126       (H)        O&G RPT 5DP 1NR                                                                              
04/25/03     1126       (H)        DP: HOLM, MCGUIRE, FATE,                                                                     
                                   CRAWFORD,                                                                                    
04/25/03     1126       (H)        KOHRING; NR: KERTTULA                                                                        
04/25/03     1126       (H)        FN1: (CED)                                                                                   
04/25/03     1138       (H)        COSPONSOR(S): HOLM                                                                           
05/07/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
05/07/03                (H)        Hearing Postponed to 1:30 PM                                                                 
05/07/03                (H)        RES AT 1:30 PM CAPITOL 124                                                                   
                                                                                                                                
BILL: HB 277                                                                                                                  
SHORT TITLE:PIPELINE UTILITIES REGULATION                                                                                       
SPONSOR(S): REPRESENTATIVE(S)DAHLSTROM                                                                                          
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/17/03     1026       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/17/03     1026       (H)        O&G, L&C                                                                                     
04/22/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/22/03                (H)        -- Meeting Canceled --                                                                       
04/23/03     1081       (H)        COSPONSOR(S): KOHRING                                                                        
04/24/03     1108       (H)        RES REFERRAL ADDED AFTER O&G                                                                 
04/24/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/24/03                (H)        Heard & Held                                                                                 
04/24/03                (H)        MINUTE(O&G)                                                                                  
04/29/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/29/03                (H)        Scheduled But Not Heard                                                                      
05/01/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
05/01/03                (H)        Moved CSHB 277(O&G) Out of                                                                   
                                   Committee                                                                                    
05/01/03                (H)        MINUTE(O&G)                                                                                  
05/02/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
05/02/03                (H)        Scheduled But Not Heard                                                                      
05/02/03                (H)        RES AT 1:00 PM CAPITOL 124                                                                   
05/02/03                (H)        <Pending Referral> -- Meeting                                                                
                                   Canceled --                                                                                  
05/05/03     1316       (H)        O&G RPT CS(O&G) NT 1DP 6NR                                                                   
05/05/03     1316       (H)        DP: KOHRING; NR: HOLM,                                                                       
                                   ROKEBERG, FATE,                                                                              
05/05/03     1316       (H)        KERTTULA, CRAWFORD, MCGUIRE                                                                  
05/05/03     1317       (H)        FNS: FORTHCOMING                                                                             
05/06/03     1372       (H)        FN1: ZERO(REV) RECEIVED                                                                      
05/06/03     1372       (H)        FN2: ZERO(DNR) RECEIVED                                                                      
05/07/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
                                   Hearing Postponed to 1:30 PM                                                                 
05/07/03                (H)        RES AT 1:30 PM CAPITOL 124                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
FLOYD F. BOUSE, D.D.S., Appointee                                                                                               
to the Board of Fisheries                                                                                                       
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified as appointee to the Board of                                                                     
Fisheries.                                                                                                                      
                                                                                                                                
ROBERT (ED) DERSHAM, Appointee                                                                                                  
to the Board of Fisheries                                                                                                       
Anchor Point, Alaska                                                                                                            
POSITION STATEMENT:  Testified as appointee to the Board of                                                                     
Fisheries.                                                                                                                      
                                                                                                                                
REPRESENTATIVE VIC KOHRING                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of HB 267.                                                                            
                                                                                                                                
BILL O'LEARY, Vice President, Finance                                                                                           
Alaska Railroad Corporation (ARRC)                                                                                              
Department of Community & Economic Development                                                                                  
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     As   ARRC's  chief   executive  officer,                                                               
responded to questions on HB 267.                                                                                               
                                                                                                                                
WENDY LINDSKOOG, Director of External Affairs                                                                                   
Alaska Railroad Corporation (ARRC)                                                                                              
Department of Community & Economic Development                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   During  hearing on  HB 267,  testified that                                                               
ARRC supports the  use of its tax-exempt bonding  authority for a                                                               
gas pipeline project; answered questions.                                                                                       
                                                                                                                                
PAUL FUHS, Lobbyist                                                                                                             
for Yukon Pacific Corporation                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on HB 267 and answered questions.                                                                
                                                                                                                                
RANDOLPH L. JONES, JR., Attorney at Law                                                                                         
Conner & Winters, PC                                                                                                            
Tulsa, Oklahoma                                                                                                                 
POSITION  STATEMENT:    Representing Williams  Alaska  Petroleum,                                                               
Inc., expressed concerns about the effects of HB 277.                                                                           
                                                                                                                                
REPRESENTATIVE NANCY DAHLSTROM                                                                                                  
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Testified  as sponsor  of  HB 277;  stated                                                               
support  for   the  proposed  committee  substitute   (CS)  dated                                                               
5/6/2003.                                                                                                                       
                                                                                                                                
JANICE GREGG LEVY, Assistant Attorney General                                                                                   
Oil, Gas & Mining Section                                                                                                       
Civil Division (Juneau)                                                                                                         
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Explained the proposed CS for  HB 277 dated                                                               
5/6/2003; answered questions.                                                                                                   
                                                                                                                                
DAVE HARBOUR, Chairman                                                                                                          
Regulatory Commission of Alaska (RCA)                                                                                           
Department of Community and Economic Development (DCED)                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Expressed concerns about  HB 277, including                                                               
that  it makes  the process  less streamlined  and provides  some                                                               
regulatory certainty for a few, but at the expense of others.                                                                   
                                                                                                                                
JERRY GALLAGHER, Manager                                                                                                        
Government Relations                                                                                                            
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in  support of the proposed CS for                                                               
HB 277 dated 5/6/2003.                                                                                                          
                                                                                                                                
JIM DECKER, Senior Counsel                                                                                                      
BP Pipelines (Alaska) Inc.                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified in  support of  HB 277;  offered                                                               
general  support   for  the  proposed  CS   dated  5/6/2003,  but                                                               
expressed some concerns.                                                                                                        
                                                                                                                                
MARK HANLEY, Public Affairs Manager, Alaska                                                                                     
Anadarko Petroleum Corporation                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified on  HB 277, emphasizing  the need                                                               
for reasonable rates and access;  said the bill creates certainty                                                               
for some at the expense of others.                                                                                              
                                                                                                                                
GENE  BURDEN,  Senior  Vice  President  of  Government  Relations                                                               
Tesoro Petroleum Corporation                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Testified  in  opposition   to  HB  277;                                                               
emphasized the need for fair and reasonable rates.                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-38, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  HUGH FATE  called the  House Resources  Standing Committee                                                             
meeting, which had  been recessed at 9:21 a.m., back  to order at                                                               
1:40 p.m.   Representatives  Fate, Gatto,  Morgan, and  Wolf were                                                               
present at  the call  to order.   Representatives  Masek, Heinze,                                                               
Lynn,  Guttenberg, and  Kerttula arrived  as the  meeting was  in                                                               
progress.                                                                                                                       
                                                                                                                                
Number 0175                                                                                                                     
                                                                                                                                
CHAIR FATE announced  at 1:41 p.m. that the  committee would take                                                               
an at-ease until a quorum was present.                                                                                          
                                                                                                                                
[Due  to  technical  difficulties,   the  following  wasn't  tape                                                               
recorded  but was  reconstructed from  the committee  secretary's                                                               
log notes.]                                                                                                                     
                                                                                                                                
CHAIR  FATE  called  the  meeting  back to  order  at  1:46  p.m.                                                               
[Representatives  Masek,  Lynn,  and   Kerttula  had  joined  the                                                               
meeting and thus there was a quorum.]                                                                                           
                                                                                                                                
CONFIRMATION HEARINGS                                                                                                         
                                                                                                                                
Board of Fisheries                                                                                                            
                                                                                                                                
CHAIR FATE  announced that the  first order of business  would be                                                               
consideration of  the appointments of  Floyd F. Bouse  and Robert                                                               
(Ed) Dersham  to the Board of  Fisheries.  He asked  Dr. Bouse to                                                               
explain why he wishes to be on the board.                                                                                       
                                                                                                                                
FLOYD  F. BOUSE,  D.D.S., Appointee  to the  Board of  Fisheries,                                                               
began  by  saying he  has  attended  several Board  of  Fisheries                                                               
meetings, petitioning on issues he's been involved in.                                                                          
                                                                                                                                
[Tape recording began at this point.]                                                                                           
                                                                                                                                
Number 0180                                                                                                                     
                                                                                                                                
DR.  BOUSE  noted  that  he  has been  to  Cordova,  Valdez,  and                                                               
villages up and  down the Copper River; has  a long-time interest                                                               
in  the  process  and  the issue  of  fisheries;  did  sport-fish                                                               
guiding for some  years, though not since 1998; and  was asked by                                                               
some people he respects to submit his name for this position.                                                                   
                                                                                                                                
CHAIR FATE announced  a possible conflict of  interest because he                                                               
may have been one of those people.                                                                                              
                                                                                                                                
Number 0287                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF,  citing figures  from the  tourism industry,                                                               
said approximately 1.6 million visitors  come to Alaska annually.                                                               
He asked, "Where do you  stand on natural stock enhancement using                                                               
the same genetic brood stock?"                                                                                                  
                                                                                                                                
DR. BOUSE replied:                                                                                                              
                                                                                                                                
     I'm not sure  what connection that has  to tourism, but                                                                    
     I can  tell you  ... my  feelings about  enhancement of                                                                    
     the fisheries:   I'm all for it, as long  as it doesn't                                                                    
     create a problem.  In  other words, I don't want things                                                                    
     to  be a  curse  in  disguise.   Some  of our  hatchery                                                                    
     projects  have   gone  along  really  well,   and  some                                                                    
     haven't.  So  I think we have to be  very careful about                                                                    
     understanding which  ones have had any  negative impact                                                                    
     on the wild stocks ... that we have to protect.                                                                            
                                                                                                                                
     My  ...   position  is,  it's  an   absolute  priority:                                                                    
     protect  wild-stock  fish   to  maintain  the  properly                                                                    
     established  biological escapement  goals ...  in river                                                                    
     management  systems.     And  so  the   hatcheries  are                                                                    
     wonderful; they've  made a  lot of money  for a  lot of                                                                    
     people and  put a lot more  fish ... in the  rivers for                                                                    
     everyone.  But they've  created some problems along the                                                                    
     way.    I  think  we  have  to  maintain  the  hatchery                                                                    
     systems, but  be very careful  about which ones  ... we                                                                    
     keep producing  - and  some may have  to be  shut down.                                                                    
     There are  some causing problems throughout  the state,                                                                    
     I understand.                                                                                                              
                                                                                                                                
Number 0435                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF  explained that  he was  tying tourism  to it                                                               
because nearly  300,000 nonresident  fishing licenses  are issued                                                               
yearly.   He  then asked,  "Where do  you stand  on nonindigenous                                                               
predator control  of freshwater fish?"   He indicated  there will                                                               
be  legislation introduced;  said this  is an  issue relating  to                                                               
northern  pike on  the  Kenai Peninsula  and  in the  [Matanuska-                                                               
Susitna  area]; and  said he  wants to  know where  board members                                                               
stand with  regard to trying  to control "live  transportation of                                                               
fish,  which is  currently  illegal  in the  state  of Alaska  by                                                               
unlicensed individuals."                                                                                                        
                                                                                                                                
DR. BOUSE replied:                                                                                                              
                                                                                                                                
     My reaction would  be to tried to prohibit  ... that as                                                                    
     much as we can.  We'd  have to look at the resource and                                                                    
     see if it  could stand ... a new species  of fish being                                                                    
     introduced.    But pike  are  notorious  for being  ...                                                                    
     deadly predators.   And I  understand, down  ... around                                                                    
     Palmer and  that area, down  on the Kenai,  they've got                                                                    
     pike coming into systems where  they're not supposed to                                                                    
     be.  ... I  would  guess we'll  be  looking at  systems                                                                    
     where  we'd  have  to  try  to  eliminate  them  if  we                                                                    
     possibly can.   If they're  going to be a  detriment to                                                                    
     things like rainbow trout or  salmon stocks, they would                                                                    
     just have to go.                                                                                                           
                                                                                                                                
     Now, on  the other hand,  we have pike in  systems like                                                                    
     ...  the  Chatanika  River   here  in  Fairbanks  where                                                                    
     they're a  natural part  of the  system and  the salmon                                                                    
     seem  to make  it through  the gauntlet  of pikes.   So                                                                    
     we'd have  to look  at whether they've  been introduced                                                                    
     into the wrong  place.  And if  they're causing damage,                                                                    
     ... I would guess they'd have to be eliminated.                                                                            
                                                                                                                                
     On the other hand, you  find places where pike could be                                                                    
     introduced  to create  tourism.   So we'd  have to  run                                                                    
     that past  the staff;  we'd have to  run that  past the                                                                    
     sport fish ... and the  biologist staff to see what the                                                                    
     status of that  fishery is, where it's  been, and where                                                                    
     it's going, ... if we get pike involved.                                                                                   
                                                                                                                                
Number 0623                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOLF  said he  appreciated  the  response, but  a                                                               
fisheries biologist  had explained to him,  when questioned about                                                               
northern pike  on the  Kvichak River in  the Bristol  Bay region,                                                               
"Look  at the  watershed, the  volume of  fish returning  to that                                                               
system, and then  compare them to the Kenai River."   It's a huge                                                               
difference, he said.                                                                                                            
                                                                                                                                
Number 0670                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked Dr.  Bouse  to  comment on  the                                                               
Chitina dip net fishery, in which he himself participates.                                                                      
                                                                                                                                
DR. BOUSE  responded that it  is a trek  his family makes  one to                                                               
three times a year because they  enjoy fishing there; it has been                                                               
part  of  the family  fishing  experience  since 1985,  and  he'd                                                               
learned from a  now elderly man who started fishing  there in the                                                               
1960s.  Noting that it's an  important source of fish for him and                                                               
very  important  to thousands  of  Alaskans,  Dr. Bouse  said  he                                                               
appreciates the opportunity to take  part in it and looks forward                                                               
to trying  to protect it if  possible.  In response  to questions                                                               
from  Representative Masek  about  his previous  travel to  rural                                                               
areas, he explained  that it strictly related to  dentistry and a                                                               
state contract  for research  on Bush access  to health  care; he                                                               
also mentioned the [federal] Public Health Service.                                                                             
                                                                                                                                
CHAIR  FATE  asked  whether  there   were  further  questions  of                                                               
Dr. Bouse and then asked Mr. Dersham to testify.                                                                                
                                                                                                                                
Number 0900                                                                                                                     
                                                                                                                                
ROBERT (ED) DERSHAM,  Appointee to the Board  of Fisheries, noted                                                               
that he'd  served six years  on the  board and had  submitted his                                                               
name for consideration for another term.  He told members:                                                                      
                                                                                                                                
     During  the six  years, I've  become a  big fan  of our                                                                    
     public process  in Alaska to  deal with issues  of fish                                                                    
     and game.   I have quite  a bit of experience  with the                                                                    
     Western Association  of Fish and Wildlife  Agencies and                                                                    
     am able to  compare our process with  the other states,                                                                    
     and  I  think ours  ...  is  definitely the  (indisc.--                                                                    
     coughing)  public process  of any  Western state;  that                                                                    
     goes  all  the way  back  to  the delegation  that  the                                                                    
     legislature made  that created  the boards of  fish and                                                                    
     game ... and  the criteria and policies  that have been                                                                    
     developed  over  the  years   such  as  the  allocation                                                                    
     criteria   and   the   different   policies   ...   for                                                                    
     consideration of emergency  petitions and agenda-change                                                                    
     requests and on  into ..., more recently, our  use of a                                                                    
     subcommittee system for board meetings.                                                                                    
                                                                                                                                
     I've  ...  got  a   lot  of  experience  utilizing  the                                                                    
     policies and  procedures of the  board.  And  ... we're                                                                    
     looking at having five new  board members now, so ... I                                                                    
     agreed to  submit myself to  be considered  for another                                                                    
     term because  I feel  I can ...  be helpful  in keeping                                                                    
     the  process  moving  along  and  help  the  new  board                                                                    
     members ... get up to speed with that.                                                                                     
                                                                                                                                
Number 1011                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOLF asked,  under this  new administration,  how                                                               
things   can   move  forward   without   looking   at  the   past                                                               
administration, to bring "our Cook Inlet together."                                                                             
                                                                                                                                
MR. DERSHAM said he'd gone  through four board meetings with four                                                               
newly appointed  members, whom  he thinks  highly of;  he offered                                                               
his assessment that  none of those four has a  personal agenda to                                                               
push  and that  all want  to work  to "conserve  and develop  the                                                               
fisheries of  Alaska."  In  that regard, he  expressed confidence                                                               
that  it will  work  out  well:   the  more  that members  listen                                                               
without  preconceived notions  about the  final determination  of                                                               
certain  issues, the  better things  work.   As far  as specifics                                                               
relating to Cook Inlet, he said  the issues are tough and must be                                                               
dealt with one at  a time, with the most input  and thus the best                                                               
decisions possible.                                                                                                             
                                                                                                                                
Number 1181                                                                                                                     
                                                                                                                                
REPRESENTATIVE   WOLF  asked   where   Mr.   Dersham  stands   on                                                               
controlling the  transportation of  live pike and  "restocking by                                                               
bucket biology."                                                                                                                
                                                                                                                                
MR.  DERSHAM  replied  that  this  is  a  very  emotional  issue,                                                               
depending on  what part of the  state or piece of  water is being                                                               
discussed; there are a lot of  strong opinions.  He reported that                                                               
the  Western Association  of  Fish and  Wildlife  Agencies did  a                                                               
project  for  which one  question  related  to people's  feelings                                                               
about  pike; there  was such  a  wide range  of responses  across                                                               
Alaska  that  it became  a  "poster  boy  of presentation"  at  a                                                               
meeting  to show  how different  the attitudes  are statewide  on                                                               
this  issue.   Noting that  the Kenai  Peninsula is  beginning to                                                               
have  some problems  with pike  and doesn't  have anyplace  where                                                               
pike have  been established "in  the purposes of  the fisheries,"                                                               
he added,  "So I  don't think  pike have any  place on  the Kenai                                                               
Peninsula."  Other  than that, he said, it must  be dealt with on                                                               
a case-by-case  basis because [pike]  certainly can  wreak havoc,                                                               
particularly with silver salmon stocks.                                                                                         
                                                                                                                                
Number 1324                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF  agreed.  He  brought attention to  issues in                                                               
Cook  Inlet  that  arise  when there  are  numerous  user  groups                                                               
including commercial, sport, and personal  use.  He asked, "Where                                                               
would you stand on  some natural, same-genetic-stock enhancements                                                               
producing some  dead-end fisheries,  something like what  we have                                                               
in Homer Lagoon, but off of one of our Lower Peninsula streams?"                                                                
                                                                                                                                
MR. DERSHAM  responded that it  must be  addressed one case  at a                                                               
time;  in  a  general  sense,  though,  he  supports  enhancement                                                               
wherever  possible  and  has  been  a  supporter  of  enhancement                                                               
wherever  it  appears  to  be  viable  and  not  harmful  to  the                                                               
resource.                                                                                                                       
                                                                                                                                
Number 1370                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO asked  Mr. Dersham, as a  board member, what                                                               
method he  would use  to eliminate a  nonindigenous species  in a                                                               
given area.                                                                                                                     
                                                                                                                                
MR. DERSHAM replied:                                                                                                            
                                                                                                                                
     Just  for   example,  with   pike,  we've   dealt  with                                                                    
     proposals  ... and  the  department  where, in  certain                                                                    
     closed systems, they were able  to use rotenone. ... In                                                                    
     other  places,  we've  considered ...  such  things  as                                                                    
     increased  bag limits  or mandatory  retention or  even                                                                    
     legalized crossbows  for pike -  but that ...  was kind                                                                    
     of an  issue ... of stunted  pike in a few  lakes where                                                                    
     [we] allowed  that; it  wasn't trying  to wipe  out the                                                                    
     species.  But  we just ... try to take  each case based                                                                    
     on the nature  of the system and ... the  advice we get                                                                    
     from  the department,  and then  of  our public  input.                                                                    
     And so we're pretty flexible.                                                                                              
                                                                                                                                
Number 1458                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOLF remarked  that rotenone  doesn't have  a 100                                                               
percent kill rate for northern pike, as shown by some studies.                                                                  
                                                                                                                                
MR. DERSHAM said that's not surprising, since they're tough.                                                                    
                                                                                                                                
CHAIR  FATE  asked whether  there  were  further questions.    He                                                               
thanked the appointees and closed testimony.                                                                                    
                                                                                                                                
Number 1516                                                                                                                     
                                                                                                                                
CHAIR FATE  informed members  that he would  pass around  a sheet                                                               
for them to sign.  [No  motion was made, but the confirmations of                                                               
Dr.  Bouse and  Mr. Dersham  were  treated as  advanced from  the                                                               
House Resources Standing Committee.]                                                                                            
                                                                                                                                
The committee took a brief at-ease at 2:05 p.m.                                                                                 
                                                                                                                                
HB 267-AK RAILROAD BONDS FOR NAT.GAS TRANSPORT                                                                                
                                                                                                                                
CHAIR FATE  announced that  the next order  of business  would be                                                               
HOUSE  BILL NO.  267, "An  Act relating  to the  Alaska Railroad;                                                               
authorizing the Alaska Railroad  Corporation to provide financing                                                               
for  the  acquisition,  construction,  improvement,  maintenance,                                                               
equipping, or  operation of facilities for  the transportation of                                                               
natural gas  resources within  and outside  the state  by others;                                                               
authorizing  the Alaska  Railroad Corporation  to issue  bonds to                                                               
finance those facilities; and providing for an effective date."                                                                 
                                                                                                                                
Number 1571                                                                                                                     
                                                                                                                                
REPRESENTATIVE  VIC KOHRING,  Alaska State  Legislature, sponsor,                                                               
explained  that  HB  267  authorizes  the  board  of  the  Alaska                                                               
Railroad  Corporation (ARRC)  to  provide tax-exempt  bonds as  a                                                               
financing  source to  encourage construction  of a  gas pipeline.                                                               
It  would  make the  monies  available  for private  industry  to                                                               
borrow,  providing cheap  financing  because of  the current  low                                                               
interest  rates and  the fact  that these  are tax-exempt  bonds.                                                               
Commending Chair  Fate's work  on HB  116, a  major piece  of the                                                               
puzzle, he referred to work in  Congress on an energy package and                                                               
expressed   hope   that   it    will   include   various   permit                                                               
authorizations and so forth for a  gas pipeline.  Noting that the                                                               
big question is whether this  pipeline will be deemed financially                                                               
feasible by those  that would build and own it,  he said [HB 267]                                                               
is a very important step in getting that gas pipeline built.                                                                    
                                                                                                                                
REPRESENTATIVE  KOHRING explained  that these  bonds, if  issued,                                                               
would  be "nonrecourse  debt," the  responsibility of  those that                                                               
borrow  the money,  not ARRC  or the  State of  Alaska; no  state                                                               
assets would  be "liened" to repay  it, and neither ARRC  nor the                                                               
state would  own the  pipeline, which would  be owned  by private                                                               
companies  that would  build,  own,  and operate  it.   The  bond                                                               
proceeds   would    finance   its    acquisition,   construction,                                                               
improvement, maintenance,  equipping, and  operation.   This bill                                                               
authorizes  ARRC  to  issue  up  to  $17  billion  in  bonds  for                                                               
construction of the pipeline, which  is estimated to cost as much                                                               
as $30  billion; the amount  can be increased if  the legislature                                                               
so chooses,  but Representative Kohring  said he'd been  told $17                                                               
billion would  provide the lion's  share and enable  the industry                                                               
to have some  pretty cheap financing to make  the project viable.                                                               
He said there  is no ceiling to the debt  that could be incurred,                                                               
as far as he'd been told.                                                                                                       
                                                                                                                                
Number 1780                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING brought  attention  to correspondence  in                                                               
committee packets  from George K.  Baum & Company in  response to                                                               
Representative  John  Harris,  co-chair   of  the  House  Finance                                                               
Committee,  which  offers the  analysis  that  this is  feasible.                                                               
With  regard  to  support  from  the  industry  and  a  potential                                                               
pipeline   owner,   packets   also    contain   a   letter   from                                                               
ConocoPhillips  Alaska,   Inc.,  which  he  said   has  testified                                                               
previously in support of this  legislation.  As to ARRC's ability                                                               
to issue tax-exempt bonds, this  authority was granted in 1983 by                                                               
Congress when the State of  Alaska acquired the railroad from the                                                               
federal  government, he  said,  noting  that Congress  reaffirmed                                                               
that authority in the tax-reform Act of 1986.                                                                                   
                                                                                                                                
Number 1849                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO  said he supports  this, but  several months                                                               
ago had  heard it would  be $20  billion each to  build, operate,                                                               
and finance  it, for a  total of $60  billion.  He  observed that                                                               
Representative Kohring had talked  about $30 billion, which would                                                               
raise  it to  $70  billion  if the  other  numbers were  correct.                                                               
Noting that  at some point there  will be more spent  than can be                                                               
generated, he asked at what point this isn't worth doing.                                                                       
                                                                                                                                
REPRESENTATIVE  KOHRING  deferred  to testifiers  including  Paul                                                               
Fuhs [lobbyist for Yukon Pacific Corporation].                                                                                  
                                                                                                                                
CHAIR   FATE  also   requested  clarification   from  Mr.   Fuhs.                                                               
Challenging  the figures  mentioned by  Representative Gatto,  he                                                               
said  there  will be  different  costs  for different  [proposed]                                                               
segments, and the  $20 billion mentioned was from  Prudhoe Bay to                                                               
Chicago, not even to a hub in Alberta, Canada.                                                                                  
                                                                                                                                
REPRESENTATIVE KOHRING  mentioned estimates  from $20  billion to                                                               
$30  billion for  construction  costs if  it  goes "the  Canadian                                                               
route  -  Alaska  down  to  Tok  and  down  into  Canada  towards                                                               
Chicago."  If it were  built down the existing pipeline corridor,                                                               
he said he'd  heard perhaps $12 billion.  He  expressed hope that                                                               
eventually  there'd be  spur lines  in Alaska  to meet  increased                                                               
energy demands.                                                                                                                 
                                                                                                                                
Number 1991                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF stated support for  the whole concept.  Since                                                               
ARRC is  owned by  the state, however,  he asked  whether selling                                                               
these bonds would tie this to  Title 36 such that builders of the                                                               
pipeline  would  have  to  pay the  prevailing  wage,  which  for                                                               
commercial projects is over $38 an hour for a carpenter.                                                                        
                                                                                                                                
REPRESENTATIVE KOHRING deferred to ARRC personnel.                                                                              
                                                                                                                                
Number 2062                                                                                                                     
                                                                                                                                
BILL   O'LEARY,   Vice   President,  Finance,   Alaska   Railroad                                                               
Corporation   (ARRC),   Department   of  Community   &   Economic                                                               
Development, noting  that he is  the chief financial  officer for                                                               
ARRC, said  it isn't  in his  purview.   He conveyed  his initial                                                               
inclination,  however,   that  it   wouldn't  be  subject   to  a                                                               
prevailing wage [requirement] under  Title 36 because it wouldn't                                                               
be considered  public construction.   He said  he would  defer to                                                               
ARRC's legal  staff for a  more definitive answer, and  could get                                                               
back to the committee on that, if so desired.                                                                                   
                                                                                                                                
REPRESENTATIVE WOLF asked  that Mr. O'Leary provide  an answer at                                                               
least to Representative Wolf's office.                                                                                          
                                                                                                                                
Number 2134                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  about  the  state's ability  to                                                               
"put some policy into these  bonds" with regard to an Alaska-hire                                                               
priority, for example.                                                                                                          
                                                                                                                                
MR. O'LEARY  said he believed  that was attempted in  last year's                                                               
similar  legislation,  which  to  his  belief  was  amended  with                                                               
Alaska-hire  provisions and  so  forth.   However,  he said  that                                                               
isn't  something  normally  done  through  a  bond  indenture  or                                                               
anything of that nature.   He suggested it has more  to do with a                                                               
legislative approach than the actual sale of bonds.                                                                             
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  whether   there  was  a  legal                                                               
opinion on the state's ability to do that.                                                                                      
                                                                                                                                
CHAIR FATE said there was.                                                                                                      
                                                                                                                                
Number 2218                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO asked what happens  if there is a default on                                                               
the bonds and who becomes the responsible party.                                                                                
                                                                                                                                
MR. O'LEARY answered  that these bonds are planned to  be sold as                                                               
a nonrecourse obligation.   The full faith and  credit of neither                                                               
ARRC  nor the  State of  Alaska would  be behind  the bonds;  the                                                               
underlying credit  would be that  of the "producers"  or whomever                                                               
ARRC would have  the contractual arrangement with  for the actual                                                               
construction and  operation of  the gas  line.   If there  were a                                                               
default, it  would not come  back to the  assets of the  state or                                                               
ARRC, to his understanding of how this is envisioned.                                                                           
                                                                                                                                
REPRESENTATIVE GATTO said he interprets that as "risk capital."                                                                 
                                                                                                                                
MR. O'LEARY  responded, "It's  certainly the  risk that  would be                                                               
factored in  when the bonds  are being  priced and being  sold in                                                               
the market, yes."                                                                                                               
                                                                                                                                
REPRESENTATIVE   KOHRING  indicated   the  legislation   somewhat                                                               
addresses that  issue by  calling for  the railroad  board, which                                                               
would actually  decide to whom  they'd issue the proceeds  of the                                                               
bonds, to first have to  obtain adequate assurance that a project                                                               
sponsor  is  able to  repay  the  bonds;  to determine  that  any                                                               
contract or  lease is sufficient  to pay the bonds  as scheduled;                                                               
and to ensure  that reserves are maintained for  all payments and                                                               
to pay all costs necessary to secure those bonds.                                                                               
                                                                                                                                
Number 2333                                                                                                                     
                                                                                                                                
WENDY LINDSKOOG,  Director of  External Affairs,  Alaska Railroad                                                               
Corporation,  Department  of  Community &  Economic  Development,                                                               
told members:                                                                                                                   
                                                                                                                                
     The  railroad does  support the  use of  our tax-exempt                                                                    
     bonding authority for a gas  pipeline project.  We feel                                                                    
     ... if  that's a  good tool that  helps the  project go                                                                    
     forward,  then  great.    Part of  our  mission  is  to                                                                    
     support economic  development for  the state, so  we do                                                                    
     feel that falls within our mission.                                                                                        
                                                                                                                                
MS.  LINDSKOOG, in  response to  a  question from  Representative                                                               
Guttenberg, said  a similar  bill was introduced  last year  as a                                                               
stand-alone  bill  and  was  combined   with  HB  519,  the  bill                                                               
referenced just a  few minutes ago.   That is where a  lot of the                                                               
policy  issues were  combined with  the  actual use  of the  tax-                                                               
exempt bonding.   "As it  turned out last  year, I think  we were                                                               
the smallest part of that bill, really," she added.                                                                             
                                                                                                                                
Number 2406                                                                                                                     
                                                                                                                                
PAUL FUHS,  Lobbyist for Yukon Pacific  Corporation (YPC), noting                                                               
that  YPC  had  provided information  which  Representative  John                                                               
Harris had requested on project  economics, informed members that                                                               
this  attachment  [in  packets]   includes  wellhead  prices  and                                                               
construction  costs  for  a  line that  would  follow  the  [oil]                                                               
pipeline corridor  to Valdez.   He said, "There are  two projects                                                               
out there, as you  know.  This bill is nonspecific.   It could go                                                               
to either one, whichever finds  economic partners and is going to                                                               
move forward."                                                                                                                  
                                                                                                                                
MR. FUHS  referred to  correspondence in  packets from  George K.                                                               
Baum &  Company.  Noting that  it says the bonds  for the project                                                               
could  be issued  if the  ARRC vehicle  were available,  Mr. Fuhs                                                               
remarked, "They think  it's quite important to the  project."  He                                                               
pointed out  that a  spreadsheet from  that company  compares the                                                               
difference between  having and not  having the  railroad bonding;                                                               
he said the difference of almost  2 percent on the rate of return                                                               
is pretty  substantial on  a project  this size.   Mr.  Fuhs also                                                               
indicated  George  K. Baum  &  Company  had analyzed  the  Alaska                                                               
Natural Gas  Development Authority established by  Proposition 3.                                                               
"They also indicated that it would facilitate that," he said.                                                                   
                                                                                                                                
MR. FUHS addressed  potential revenues for the state.   He opined                                                               
that  no other  project out  there could  help meet  some of  the                                                               
budget  shortfalls.   Although  [developing  the Arctic  National                                                               
Wildlife  Refuge (ANWR)]  would be  good for  revenues, he  said,                                                               
"It's not  much for,  really, private employment.   It's  ... not                                                               
all  that much  activity."   He indicated  the spreadsheet  shows                                                               
that with a privately owned  [gas pipeline], $350 million to $400                                                               
million  a year  [would come  to the  state]; with  a development                                                               
authority,  the  return  to  the   state  could  be  as  high  as                                                               
$1 billion a year.                                                                                                              
                                                                                                                                
Number 2535                                                                                                                     
                                                                                                                                
MR. FUHS turned attention to previous questions and said:                                                                       
                                                                                                                                
     First,  last  year with  the  legislation  in terms  of                                                                    
     Alaska hire,  it wasn't put  as "Alaska hire."   It was                                                                    
     put as "project labor  agreements with the unions," and                                                                    
     that was not adopted.  ... The supreme court determined                                                                    
     that Alaska-hire  laws that discriminated  were against                                                                    
     the constitution.                                                                                                          
                                                                                                                                
     However, the way  that you can do it  through bonding -                                                                    
     and  we   did  it  through  AIDEA   [Alaska  Industrial                                                                    
     Development  and Export  Authority]  with  the Red  Dog                                                                    
     Mine -  if you do it  as an incentive, the  more people                                                                    
     that you hire,  that your interest rate is  tied to it,                                                                    
     you can  do it that way.   And that's what  we did with                                                                    
     the  Red  Dog  Mine,  and that's  ...  one  reason  why                                                                    
     there's  a very,  very high  percentage of  Alaskan and                                                                    
     local  hire,  actually,  in   the  Kotzebue  area,  was                                                                    
     because of the way that bonding was put together. ...                                                                      
                                                                                                                                
     Most  of the  last pipeline  was built  with a  project                                                                    
     labor agreement.   Our company  thinks that's  the best                                                                    
     way to go.  You go  for "no strike" clauses, you go for                                                                    
     efficiencies and interjurisdictional  work, ... you get                                                                    
     the  qualified   people,  and   you  don't   have  work                                                                    
     stoppages.                                                                                                                 
                                                                                                                                
Number 2558                                                                                                                     
                                                                                                                                
MR. FUHS responded to Representative  Gatto's earlier question by                                                               
saying  those  numbers  aren't  that  far off.    He  noted  that                                                               
financing costs when a person buys  a house may double the amount                                                               
owed,  for example.   Although  $20 billion  may be  the cost  of                                                               
building the project, it will be  another $20 billion by the time                                                               
the debt  is paid  off plus  interest over  20 or  30 years.   In                                                               
addition, there are costs to operate, maintain, and repair it.                                                                  
                                                                                                                                
REPRESENTATIVE  GATTO  said  "20,  20,   20"  was  just  easy  to                                                               
remember, but it leads to the  question of at what point "30, 30,                                                               
30" or "40, 40, 40" would be  okay.  He again asked whether there                                                               
is a number for the point at which it wouldn't be worth it.                                                                     
                                                                                                                                
MR. FUHS replied:                                                                                                               
                                                                                                                                
     Well, the numbers that are  in our information here, as                                                                    
     far as I  know, are the only economic  data that's ever                                                                    
     been put  out on  any project.   And we  haven't really                                                                    
     seen data  on the Canadian project,  the Alcan pipeline                                                                    
     project.   Maybe some  of the  other members  have seen                                                                    
     it, but it's never been presented to the public.                                                                           
                                                                                                                                
     But  one thing  that you've  got with  this nonrecourse                                                                    
     financing  is,  because  it's  not  general  obligation                                                                    
     debt, in order  to sell those bonds you have  to have a                                                                    
     bonding company  that has enough faith  in your project                                                                    
     and  the  returns  that they're  going  to  risk  their                                                                    
     reputation to go out and  sell those bonds - because if                                                                    
     they  fail,  it's going  to  be  a  black eye  on  that                                                                    
     company.                                                                                                                   
                                                                                                                                
     The other thing is, the  investors are going to look on                                                                    
     it and say, "Hey, there's  no deep pockets behind this;                                                                    
     we  really  have to  believe  in  the revenues  of  the                                                                    
     project."  So  ... you have two stops along  the way of                                                                    
     somebody  who's   actually  putting  their   money  and                                                                    
     reputation on  the line, that  if the  economics aren't                                                                    
     there, those bonds will not be sold.                                                                                       
                                                                                                                                
Number 2657                                                                                                                     
                                                                                                                                
CHAIR FATE  referred to Mr.  Fuhs's discussion of  possible lines                                                               
and asked, "What  if both lines are financed and  the projects go                                                               
forward:   does  that require  one  bonding package,  or is  that                                                               
going to require  more than one bonding package  for the separate                                                               
lines?"                                                                                                                         
                                                                                                                                
MR. FUHS answered that it  depends how the project is structured.                                                               
Somebody could want  to do both a line to  Valdez and one through                                                               
Canada.  Or somebody could want  to do one line, and someone else                                                               
could  want  to do  a  second  line.    If there  were  different                                                               
sponsors,  there  would be  different  bonding  packages.   There                                                               
might be  a need  to revisit  this and  increase the  levels that                                                               
would be available if there were going to be a "Y" line.                                                                        
                                                                                                                                
CHAIR FATE  asked whether there  is discretion.  In  other words,                                                               
can they  pick and choose?   For example, if they  reach capacity                                                               
in bonding  of the  Canadian route, there  wouldn't be  much left                                                               
over for the  Valdez intertie and the pipeline to  tidewater.  He                                                               
asked how they would do  that, and acknowledged perhaps he should                                                               
ask ARRC personnel.  He added:                                                                                                  
                                                                                                                                
     The thought  occurs to me  as we get closer  and closer                                                                    
     to actually  building a pipeline, and  as the authority                                                                    
     under  [Proposition] 3  becomes  closer  and closer  to                                                                    
     realization  -  I've  already  had  answers  from  FERC                                                                    
     [Federal Energy  Regulatory Commission] as to  how they                                                                    
     will  handle  ...  the   interplay  between  the  three                                                                    
     authorities,  RCA  [Regulatory Commission  of  Alaska],                                                                    
     FERC, and the new  [Proposition] 3 authority, ... which                                                                    
     they answered  - but this  leaves me ... to  wonder how                                                                    
     that could  be coordinated,  providing that  the Alaska                                                                    
     Railroad  were ...  actually asked  to come  forth with                                                                    
     bonding capacity.   I  don't know  the answer  - that's                                                                    
     why ... I'm asking -  whether they would ... prioritize                                                                    
     that ... because of the bigger pipeline.                                                                                   
                                                                                                                                
MR.  O'LEARY replied  that for  any projects  where the  railroad                                                               
bonding authority  would be  used, most  certainly ARRC  would be                                                               
very interested in  ensuring that there were  checks and balances                                                               
and that the  projects were viable.  Although there  is no stated                                                               
limit to the  amount of bonds ARRC could issue,  there is sort of                                                               
a de facto  limit as to what  investors will invest in.   At some                                                               
point, if too  many projects seemed to overlap, there  could be a                                                               
problem with marketing the bonds.                                                                                               
                                                                                                                                
Number 2820                                                                                                                     
                                                                                                                                
MR. FUHS  noted that the  bill authorizes  a certain amount.   If                                                               
more were  needed later  because of  a fortunate  occurrence such                                                               
that both  lines would be  [built], the amount could  be amended.                                                               
He pointed  out that  ARRC has  a "federal  tax loophole"  but no                                                               
authority  to issue  the bonds;  the legislation  therefore gives                                                               
the railroad  the power to  issue the bonds.   "As a  result, you                                                               
are transferring the power to  make those decisions to the Alaska                                                               
Railroad board," he  said.  "And if there is  any prioritizing to                                                               
be  done  or whatever,  you're  really  authorizing the  railroad                                                               
board to make those decisions."                                                                                                 
                                                                                                                                
Number 2856                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO asked  whether the board is  appointed or at                                                               
least confirmed by the legislature.                                                                                             
                                                                                                                                
MS.  LINDSKOOG  replied  that  the  board  is  appointed  by  the                                                               
governor but isn't confirmed by the legislature.                                                                                
                                                                                                                                
REPRESENTATIVE GATTO  expressed concern  that the  legislature is                                                               
out  of the  loop,  therefore, as  far as  the  decisions of  the                                                               
board, and is transferring its authority to the railroad.                                                                       
                                                                                                                                
CHAIR FATE  remarked that [ARRC]  is quasi-private because  it is                                                               
run as a private industry, which he said is good.                                                                               
                                                                                                                                
Number 2926                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MASEK moved  to report  HB 267  out of  committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes and correspondence; she asked for unanimous consent.                                                                      
                                                                                                                                
REPRESENTATIVE GATTO objected.                                                                                                  
                                                                                                                                
TAPE 03-38, SIDE B                                                                                                            
                                                                                                                                
[The following  is only partially  on tape and  was reconstructed                                                               
from the committee secretary's roll call sheet.]                                                                                
                                                                                                                                
A roll  call vote  was taken.   Representatives  Kerttula, Masek,                                                               
Lynn,  Morgan,  Wolf, Guttenberg,  and  Fate  voted in  favor  of                                                               
reporting  HB 267  from committee.    Representative Gatto  voted                                                               
against it.   Representative  Heinze was  absent.   Therefore, HB                                                               
267 was  reported out of  the House Resources  Standing Committee                                                               
by a vote of 7-1.                                                                                                               
                                                                                                                                
The committee took an at-ease at 2:33 p.m.                                                                                      
                                                                                                                                
HB 277-PIPELINE UTILITIES REGULATION                                                                                          
                                                                                                                                
[Contains discussion of HB 267]                                                                                                 
                                                                                                                                
CHAIR FATE  announced that  the last order  of business  would be                                                               
HOUSE  BILL NO.  277,  "An  Act relating  to  the  powers of  the                                                               
Regulatory Commission of Alaska  in regard to intrastate pipeline                                                               
transportation services  and pipeline facilities, to  the rate of                                                               
interest for  funds to be  paid by pipeline shippers  or carriers                                                               
at  the  end  of  a  suspension of  tariff  filing,  and  to  the                                                               
prospective  application  of  increased  standards  on  regulated                                                               
pipeline utilities;  allowing the commission to  accept rates set                                                               
in conformity with  a settlement agreement between  the state and                                                               
one  or more  pipeline carriers  and to  enforce the  terms of  a                                                               
settlement  agreement   in  regard   to  intrastate   rates;  and                                                               
providing  for an  effective date."   [Before  the committee  was                                                               
CSHB 277(O&G), which the sponsor  statement addressed; in packets                                                               
was a proposed committee substitute (CS).]                                                                                      
                                                                                                                                
Number 2922                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MASEK moved  to  adopt the  proposed CS,  Version                                                               
CSHB 277(RES)  bil.doc, 5/6/2003, as  a work draft.   There being                                                               
no  objection, the  proposed  CS dated  5/6/2003  was before  the                                                               
committee.                                                                                                                      
                                                                                                                                
Number 2833                                                                                                                     
                                                                                                                                
RANDOLPH L.  JONES, JR., Attorney  at Law, Conner &  Winters, PC,                                                               
representing Williams Alaska  Petroleum, Inc. ("Williams"), noted                                                               
that he'd  started in 1981  when MAPCO acquired  Earth Resources;                                                               
he  said he's  been representing  the  North Pole  refinery as  a                                                               
shipper on  the Trans-Alaska Pipeline  System (TAPS)  since 1981.                                                               
Prior to  that, he worked  for El  Paso Natural Gas  Company ("El                                                               
Paso").  He told  members that in the 1970s he  looked at all the                                                               
federal  and state  regulatory and  statutory  issues that  could                                                               
arise with  respect to  El Paso's  proposed natural  gas pipeline                                                               
from  the North  Slope  to Valdez  and then  shipping  it as  LNG                                                               
[liquefied  natural gas]  to  California.   In  addition, in  the                                                               
1970s, while  with El Paso, he  worked with Sohio on  the project                                                               
to convert one of El Paso's  natural gas pipelines to a crude-oil                                                               
pipeline for transportation from Long Beach to Texas.                                                                           
                                                                                                                                
MR.  JONES  conveyed Jeff  Cook's  apology  for being  unable  to                                                               
testify this  day and offered some  facts on his behalf.   First,                                                               
he  said the  North Pole  refinery is  the state's  largest.   It                                                               
processes  approximately 215,000  barrels  a day  of ANS  [Alaska                                                               
North  Slope]  crude  oil,  of  which  it  retains  70,000-80,000                                                               
barrels of  refined petroleum product.   Approximately 60 percent                                                               
of that  is jet  fuel; up to  18 percent is  naphtha that  may be                                                               
exported;  and the  remainder is  gasoline, diesel,  heating oil,                                                               
asphalt, and number 4 fuel  oil, which the Golden Valley Electric                                                               
Authority  uses  to  generate  electricity.    He  said  Williams                                                               
provides approximately  60 percent  of the  jet fuel  consumed in                                                               
Alaska.    The  refinery  expansion  these  past  few  years  has                                                               
primarily gone to producing more jet  fuel so that it is produced                                                               
within Alaska, rather than imported from other locations.                                                                       
                                                                                                                                
MR.  JONES referred  to HB  267, just  discussed, and  noted that                                                               
Williams  is   the  largest  customer  of   the  Alaska  Railroad                                                               
Corporation  (ARRC);  approximately  60 percent  of  its  revenue                                                               
comes  from shipments  by Williams  of  petroleum products  going                                                               
from Fairbanks to the Anchorage  terminal.  Since 1978, the North                                                               
Pole refinery  has purchased  over 300  million barrels  of state                                                               
royalty  oil, valued  at about  $5 billion.   Williams  currently                                                               
employs slightly  over 500  employees in  Alaska and  spends just                                                               
under $1 billion a year  for payroll, crude oil, electricity, and                                                               
so forth.                                                                                                                       
                                                                                                                                
Number 2639                                                                                                                     
                                                                                                                                
MR.  JONES turned  attention to  HB  277 and  said this  proposed                                                               
legislation  seems   to  stem  from   the  perception   that  the                                                               
Regulatory Commission  of Alaska (RCA)  has failed to do  its job                                                               
and has  stepped into  areas where it  shouldn't tread,  and that                                                               
this  was left  either  to  the domain  of  FERC [Federal  Energy                                                               
Regulatory Commission] or to be unregulated.  He said, however:                                                                 
                                                                                                                                
     It's important to note what  the United States court of                                                                    
     appeals  for the  District of  Columbia stated  in 1987                                                                    
     when it ruled in  the Arctic Slope Regional Corporation                                                                  
     vs. FERC  appeal of  FERC's approval  of the  TSM [TAPS                                                                  
     settlement  methodology]  settlement agreement  between                                                                    
     the State  of Alaska and  the TAPS carriers,  which set                                                                    
     the  TSM   methodology  for  calculating   the  maximum                                                                    
     interstate rate on  TAPS.  The court  stated, "Thus any                                                                    
     such  rates are  subject  to  challenge by  nonsettling                                                                    
     parties  such   as  Arctic,  as   well  as   any  other                                                                    
     nonsignatory" - end quote.                                                                                                 
                                                                                                                                
     It's important to note that  the shippers, Williams and                                                                    
     Tesoro, [which]  had brought the rate  case challenging                                                                    
     the TSM rates for 1997  ... through 2000 for intrastate                                                                    
     shipments, were  nonsignatories to that agreement.   In                                                                    
     fact,  Williams,  which was  MAPCO  at  that time,  had                                                                    
     settled the  "Quality Bank" case  in 1984 and  it also,                                                                    
     as part of that  settlement, established the "rolled-in                                                                    
     barrel-mile"    methodology    for   determining    the                                                                    
     intrastate rates from Pump Station  [No.] 1 to refinery                                                                    
     connections.   As  part of  that settlement,  MAPCO was                                                                    
     required  to withdraw  from the  interstate rate  case.                                                                    
     It did  provide that if  MAPCO's - and now  Williams' -                                                                    
     interests were  ever affected, they would  have a right                                                                    
     to come forward and challenge those rates.                                                                                 
                                                                                                                                
     The  court also  stated that  FERC made  several things                                                                    
     abundantly clear:   "FERC's approval of  the settlement                                                                    
     did  not,  in  any  manner, determine  that  the  rates                                                                    
     established  under   it  are   or  will  be   just  and                                                                    
     reasonable,  that   the  settlement  would  be   of  no                                                                    
     precedential  value in  future rate  challenges" -  end                                                                    
     quote.   And,  in  addition, perhaps  looking into  the                                                                    
     crystal  ball and  trying to  predict  the future,  the                                                                    
     court stated,  "There is another  factor as well.   The                                                                    
     reasonableness of  rates to be  charged into  the 1990s                                                                    
     and beyond  can hardly be evaluated  exclusively on the                                                                    
     basis  of a  factual record  that draws  to a  close in                                                                    
     1982" - end quote.                                                                                                         
                                                                                                                                
Number 2519                                                                                                                     
                                                                                                                                
MR. JONES continued:                                                                                                            
                                                                                                                                
     So  what  happened  when  the  shippers  came  forward,                                                                    
     challenged  TSM   rates?    The  RCA   set  three  easy                                                                    
     standards that  the TAPS carriers  had to meet.   And I                                                                    
     should note  that the State  of Alaska, as  a signatory                                                                    
     to the  TSM settlement agreement, has  an obligation to                                                                    
     defend that agreement and, in  fact, supported the TAPS                                                                    
     carriers during the rate case.                                                                                             
                                                                                                                                
Number 2420                                                                                                                     
                                                                                                                                
MR. JONES noted that Sections 1-3 of the bill affect DR&R                                                                       
[dismantlement, removal, and restoration] and said:                                                                             
                                                                                                                                
     There's  been   concern,  and  there's  a   removal  of                                                                    
     facilities.  ... Statements  in testimony  [have] been,                                                                    
     it's  not  the RCA's  place  to  really regulate  DR&R,                                                                    
     that's  for DNR  to do.   But  in looking  at it,  it's                                                                    
     important  to  keep  in mind  that  the  TAPS  carriers                                                                    
     recently, in  a filing with  the RCA, noted  [that] ...                                                                    
     TAPS crosses  approximately 53 percent  [federal] land,                                                                    
     and the other 47 percent  would be state, Native lands,                                                                    
     and also private land.  But  the way the funds would be                                                                    
     distributed  from the  rates,  over 90  percent of  the                                                                    
     DR&R funds [would be]  generated by interstate tariffs,                                                                    
     and only less than 10 percent by intrastate tariffs.                                                                       
                                                                                                                                
     So,  in  looking  at  that,  the  important  thing  is,                                                                    
     really, all the DR&R is  going to take place within the                                                                    
     state of Alaska.  This  isn't a case where a pipeline's                                                                    
     going  through  multiple states.    The  state has  the                                                                    
     interest  in seeing  that DR&R  is accomplished  on all                                                                    
     lands  within the  state.   And the  best agency  to do                                                                    
     that is  an independent  agency like the  RCA.   It can                                                                    
     oversee  all  of  the  rates.    There  is  no  federal                                                                    
     regulation of  DR&R.  The Interstate  Commerce Act does                                                                    
     not  cover   it,  and   FERC  doesn't   have  statutory                                                                    
     jurisdiction to deal with DR&R.   So the logical entity                                                                    
     to fill that void would be the RCA.                                                                                        
                                                                                                                                
Number 2392                                                                                                                     
                                                                                                                                
MR. JONES continued:                                                                                                            
                                                                                                                                
     HB 277  goes to  limit the  RCA to  strictly intrastate                                                                    
     matters, and not to step  in and fill voids where there                                                                    
     is  no regulation.    And with  respect  to DR&R,  that                                                                    
     would be to the detriment of  the state.  It would seem                                                                    
     that the  state would want an  independent state agency                                                                    
     making  sure  that  all of  the  funds  collected  from                                                                    
     shippers  were   available  to  make  sure   that  DR&R                                                                    
     occurred  appropriately  and  correctly  over  all  the                                                                    
     lands.   And knowing the  timeframe, Mr. Chair,  I will                                                                    
     stop at that point; I  figure others will address other                                                                    
     parts of the legislation.                                                                                                  
                                                                                                                                
MR. JONES,  in response  to Chair Kohring,  affirmed that  he had                                                               
the  previous bill  versions as  well  as the  proposed CS  dated                                                               
5/6/2003.                                                                                                                       
                                                                                                                                
Number 2329                                                                                                                     
                                                                                                                                
REPRESENTATIVE   NANCY  DAHLSTROM,   Alaska  State   Legislature,                                                               
sponsor,  explained that  HB 277  addresses  concerns related  to                                                               
pipeline utility  regulation.   She offered  her belief  that the                                                               
changes it  proposes are critical  and "advocate for  clarity and                                                               
future  certainty."   Stating  support  for  the changes  in  the                                                               
proposed CS, she  urged members to look at  the bill objectively,                                                               
listen to testimony, and ask tough questions to see whether or                                                                  
not appropriate changes need to be made in order to do the right                                                                
thing for the state.                                                                                                            
                                                                                                                                
CHAIR FATE requested that the Department of Law give an overview                                                                
of the changes made in the proposed CS from the original bill.                                                                  
                                                                                                                                
Number 2137                                                                                                                     
                                                                                                                                
JANICE GREGG LEVY, Assistant Attorney General; Oil, Gas & Mining                                                                
Section; Civil Division (Juneau); Department of Law, discussed                                                                  
the proposed CS as follows:                                                                                                     
                                                                                                                                
     Section 1 is  an addition from the  original House Bill                                                                    
     277.    And  this  provision  would  provide  that  the                                                                    
     commissioner of  DNR [Department of  Natural Resources]                                                                    
     is  the individual  who  coordinates  and oversees  the                                                                    
     performance of the obligations  and compliance with the                                                                    
     terms of  the lease that,  in fact, his  agency issues,                                                                    
     including the  right-of-way leases for pipelines.   And                                                                    
     that would include overseeing obligations  of DR&R - or                                                                    
     dismantlement, removal, and restoration. ...                                                                               
                                                                                                                                
     We have  always believed  that the commissioner  of DNR                                                                    
     has that authority; that's the  entity that enters into                                                                    
     our leases.   But ... just for  clarity's sake, because                                                                    
     we are  removing similar language from  the RCA statute                                                                    
     - or that's  what this bill would do -  we want to make                                                                    
     sure   that  there's   no  confusion,   that  ...   the                                                                    
     obligation  to   do  this  does  reside   within  state                                                                    
     government.    And   that's  where  the  administration                                                                    
     believes it is properly placed.                                                                                            
                                                                                                                                
     And  maybe just  as a  response to  something that  Mr.                                                                    
     Jones said  a few  minutes ago, the  administration has                                                                    
     thought  a  lot  about  where  the  responsibility  for                                                                    
     overseeing  DR&R  would  properly reside  within  state                                                                    
     government.   And we would  just agree with  the notion                                                                    
     that it  belongs with a  body that  primarily regulates                                                                    
     pipeline rates and pipeline service.                                                                                       
                                                                                                                                
     We  think it's  more appropriate  for that  entity that                                                                    
     owns our lands, that  leases our lands, that determines                                                                    
     what  provisions  go into  the  leases  to protect  the                                                                    
     state - that's the proper  entity to enforce the lease.                                                                    
     And  we  have  mechanisms.   If  there's  a  breach  of                                                                    
     contract,  a nonperformance,  we go  to court;  there's                                                                    
     not a problem there.   And ... the regulatory body with                                                                    
     the expertise over  the lands ought to be  the one that                                                                    
     oversees the  obligations.  So  that's our  thoughts on                                                                    
     Section 1.                                                                                                                 
                                                                                                                                
Number 1981                                                                                                                     
                                                                                                                                
MS. LEVY addressed Section 2 as follows:                                                                                        
                                                                                                                                
     In Section 2, the original  language of House Bill 277,                                                                    
     ...  where  it  said,   "shall  regulate  pipeline  and                                                                    
     pipeline carriers  in the state",  ... it  deleted that                                                                    
     language and then just inserted  that it would regulate                                                                    
     ... pipeline transportation service.   This raised some                                                                    
     concerns by shippers and  some within state government.                                                                    
     And we thought it would  be appropriate to clarify that                                                                    
     the  commission would  continue  to regulate  pipelines                                                                    
     and pipeline  carriers, but, again, only  to the extent                                                                    
     that it's  applicable to the  intrastate transportation                                                                    
     services.   This is also  the section that  deletes, in                                                                    
     subsection  (a)(2),  the   performance  of  obligations                                                                    
     under and compliance  with state leases. ...  I think I                                                                    
     just adequately explained that in Section 1.                                                                               
                                                                                                                                
MS. LEVY addressed Section 3 as follows:                                                                                        
                                                                                                                                
     Section 3 is,  I believe, the exact  same language that                                                                    
     appeared  in the  original House  Bill  277 to  clarify                                                                    
     that  the commission  does not  have jurisdiction  over                                                                    
     the implementation  of DR&R, or over  amounts collected                                                                    
     from  interstate  shippers  for DR&R,  but  makes  very                                                                    
     clear  that  it  does have  jurisdiction  over  amounts                                                                    
     collected in the pipeline  carriers' intrastate rates -                                                                    
     that's the last phrase.   And I think that's absolutely                                                                    
     critical  and  important,  that RCA  is  certainly  the                                                                    
     appropriate  commission  to  determine  what,  if  any,                                                                    
     should  be  collected   from  intrastate  shippers  for                                                                    
     performance  of DR&R  that  applies  to the  intrastate                                                                    
     service.                                                                                                                   
                                                                                                                                
Number 1847                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA offered her  understanding under the bill                                                               
that  the  RCA  has  intrastate-rate authority  over  DR&R,  that                                                               
interstate authority remains  with FERC, and that  DNR would have                                                               
authority for the actual DR&R itself when it happens.                                                                           
                                                                                                                                
MS. LEVY affirmed that, but added:                                                                                              
                                                                                                                                
     There's been some statements made  that the FERC has no                                                                    
     authority  over  DR&R and  so  this  leaves a  big  gap                                                                    
     within the state  and that this is a concern.   And, in                                                                    
     fact,  the FERC  does not  regulate the  performance of                                                                    
     DR&R, and I  think that's what you  were just referring                                                                    
     to,  the  actual taking  down  of  the facilities,  the                                                                    
     restoration  of  the  land.    However,  it  does  have                                                                    
     authority  over  the  rates  that  are  collected  from                                                                    
     interstate shippers  to do that.   So who  does oversee                                                                    
     the DR&R performance on federal  lands?  And the answer                                                                    
     is, of  course, the [U.S.] Department  of the Interior,                                                                    
     who entered into  the lease.  So this  brings the state                                                                    
     consistent with the FERC practice.                                                                                         
                                                                                                                                
Number 1730                                                                                                                     
                                                                                                                                
MS. LEVY continued:                                                                                                             
                                                                                                                                
     So, then,  the only remaining question  is, "Well, what                                                                    
     about over  lands that  are not owned  by the  state or                                                                    
     the  federal  government,   that  are  instead  private                                                                    
     lands?"   And,  again,  the answer  is, the  landowner,                                                                    
     first  of all,  never  had to  permit  the pipeline  to                                                                    
     cross the  private land.   But if the  landowner agreed                                                                    
     to  that, it  probably  did so  with  terms that  would                                                                    
     assure  that  the  performance of  these  environmental                                                                    
     obligations would not fall to  the landowner but to the                                                                    
     lessee  to whom  they were  leasing  this land.   So  I                                                                    
     guess the  thought is, the administration  believes the                                                                    
     less restrictive and more  flexible mechanism should be                                                                    
     employed  to  ensure  the contractual  obligations  are                                                                    
     performed.                                                                                                                 
                                                                                                                                
     And  then, trying  to think  of all  the possibilities,                                                                    
     ... suppose  you have a  private landowner who  did not                                                                    
     provide  that  there  was a  DR&R  obligation.    Well,                                                                    
     what's  left is  state and  federal environmental  laws                                                                    
     and regulations.  And we  all know that those exist and                                                                    
     that cleanup  is required,  in any  event, by  the last                                                                    
     user, by the  owner.  And so, ... to  provide that that                                                                    
     is  to  be  implemented  or  overseen  by  yet  another                                                                    
     regulatory body is not only  inefficient, it could lead                                                                    
     to conflicts as to what is actually required. ...                                                                          
                                                                                                                                
     I would see  this as really an  improvement in clarity.                                                                    
     Everything is  covered.   Those who  own the  land have                                                                    
     the absolute  right and authority to  enforce the terms                                                                    
     of  their  private  real   estate  contracts  with  the                                                                    
     pipeline carriers, and  we turn to the  RCA for whether                                                                    
     or  not monies  can be  collected for  them to  perform                                                                    
     those obligations.                                                                                                         
                                                                                                                                
Number 1640                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked, when  shippers file  their rates,                                                               
whether it is easy to understand  what amount is for DR&R as well                                                               
as what is interstate versus intrastate.                                                                                        
                                                                                                                                
MS. LEVY replied:                                                                                                               
                                                                                                                                
     It's  easy   to  tell  what's  interstate   and  what's                                                                    
     intrastate  because ...  both  rates  have been  filed.                                                                    
     And  they go  to the  carrier with  their resource  and                                                                    
     say,  "Please  ship  this  interstate  or  intrastate."                                                                    
     So that's determined  by the shipper, so  they know the                                                                    
     rates they're paying. ...                                                                                                  
                                                                                                                                
     I  know  that  on  Cook Inlet  pipeline,  the  RCA  had                                                                    
     identified  a   certain  amount   ...  that   could  be                                                                    
     collected  for DR&R.   I  think in  TAPS over  the last                                                                    
     number of  years, this has  been incorporated  into the                                                                    
     tariff  overall.  ...  If  the   question  is,  can  we                                                                    
     determine,  ultimately,  what  has been  collected  for                                                                    
     DR&R, I think  the answer is yes.  There  might be some                                                                    
     disputes  about  it,  but the  RCA  certainly  has  the                                                                    
     authority  to  hear any  of  those  discussions and  to                                                                    
     determine, based  on the  evidence presented,  what, in                                                                    
     fact, has been collected.                                                                                                  
                                                                                                                                
REPRESENTATIVE KERTTULA  suggested it  really doesn't  matter how                                                               
much was collected, because even if  it costs more, they have the                                                               
duty under  the lease or right-of-way  to take it down,  clean it                                                               
up, and take care of it.  She asked whether that is correct.                                                                    
                                                                                                                                
MS. LEVY answered in the affirmative.                                                                                           
                                                                                                                                
Number 1517                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  whether  DR&R  that  has  been                                                               
collected is kept in a physical place,  is in a trust or fund, or                                                               
is covered under a bond.                                                                                                        
                                                                                                                                
MS. LEVY replied:                                                                                                               
                                                                                                                                
     The answer  is, it depends  on what was ordered  by the                                                                    
     regulatory body.   In the  case of TAPS, up  until this                                                                    
     point,  neither FERC  nor RCA  ordered any  kind of  an                                                                    
     external fund  or accounting, or even  an internal fund                                                                    
     ... where the monies sit.   On some other pipelines, at                                                                    
     one  time, originally,  I believe  Cook Inlet  pipeline                                                                    
     was  ordered  to put  money  in  escrow  ... or  in  an                                                                    
     external  fund;   then,  on  reconsideration,   it  was                                                                    
     allowed  that  it  could account  for  the  monies  ...                                                                    
     internally  but   keep  books  that   identified  those                                                                    
     amounts.  So  the regulatory body has  the authority to                                                                    
     determine how that money will be taken care of.                                                                            
                                                                                                                                
Number 1429                                                                                                                     
                                                                                                                                
MS. LEVY addressed Section 4, saying the addition to HB 277 that                                                                
the administration supports is the last sentence, which read                                                                    
[beginning on page 4, line 30]:                                                                                                 
                                                                                                                                
     However, nothing  in this section limits  the powers of                                                                
     the   commission  to   consider  both   interstate  and                                                                
     intrastate  cost requirements  as  needed to  determine                                                                
     what  costs  may be  recovered  by  a pipeline  carrier                                                                
     through  intrastate  rates  [SET OUT  IN  THIS  CHAPTER                                                                
     EXCEPT TO THE  EXTENT TO THE EXTENT  THEY ARE PREEMPTED                                                                    
     BY FEDERAL LAW].                                                                                                           
                                                                                                                                
MS. LEVY noted that the preceding sentence said the commission                                                                  
may not consider revenue collected on interstate transportation                                                                 
when evaluating intrastate rates.  She explained:                                                                               
                                                                                                                                
     The  reason for  that is  - under  the administration's                                                                    
     view and  our understanding  of both state  and federal                                                                    
     practice  -  the  FERC,  in  determining  what  can  be                                                                    
     collected on  the interstate side, doesn't  do it based                                                                    
     on what the RCA allows  to be collected, ... nor should                                                                    
     the  reverse be  true -  the RCA  should not  determine                                                                    
     what can  be collected  based on  what's being  done on                                                                    
     the interstate side.                                                                                                       
                                                                                                                                
     The proper  way is for  the regulator to  consider what                                                                    
     the overall  costs are, and  that requires you  to look                                                                    
     at the  total costs [incurred]  - all of  the operation                                                                    
     and maintenance  of the company's  pipeline -  and then                                                                    
     allocate the  amount that's  appropriate to  either the                                                                    
     interstate or  intrastate ...; it's  5 percent,  it's 8                                                                    
     percent, 10 percent - that's  the amount that should be                                                                    
     borne by those shippers.                                                                                                   
                                                                                                                                
     So you  need to  know the  total cost  requirements, so                                                                    
     that's  what the  last sentence  provides.   You  don't                                                                    
     need  to know  what was  collected on  the other  side,                                                                    
     although  it is  a matter  of public  record.   And the                                                                    
     reason for that is, ...for  example, if the RCA were to                                                                    
     say, "Well, you need to  collect a million dollars, but                                                                    
     we see you  collected too much on  the interstate side,                                                                    
     so  we're going  to reduce  what you  can collect  over                                                                    
     here"  -  we  think  the right  mechanism,  if  someone                                                                    
     thinks  there's   been  too   much  collected   on  the                                                                    
     interstate side, the right way  is go to FERC, complain                                                                    
     to  them.     That  is  respectful  of   the  dual  ...                                                                    
     jurisdiction that exists on these pipelines.                                                                               
                                                                                                                                
Number 1280                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG referred to Section 4, [page 4] lines                                                                 
28-31.  He said:                                                                                                                
                                                                                                                                
     This is  not dealing  with ...  a complainant  going to                                                                    
     FERC.    Aren't  you  just   saying  that  they  cannot                                                                    
     consider it in  evaluating the rates?   They can't look                                                                    
     at  it at  all?   Wouldn't there  ... possibly  be some                                                                    
     consideration that they need to  look at as far as what                                                                    
     the  interstate   is  when   they're  looking   at  the                                                                    
     intrastate?                                                                                                                
                                                                                                                                
MS. LEVY asked, "Why would they need to know what's being                                                                       
collected on the interstate side?"                                                                                              
                                                                                                                                
REPRESENTATIVE GUTTENBERG replied, "Well, I'm asking you that."                                                                 
                                                                                                                                
MS. LEVY answered:                                                                                                              
                                                                                                                                
     Well,  I guess,  from the  administration's standpoint,                                                                    
     they don't need  to know that.  They just  need to know                                                                    
     what amount  of overall costs should  be collected from                                                                    
     the intrastate  shippers.  And, for  example, maybe the                                                                    
     interstate side  doesn't allow them to  collect enough.                                                                    
     We  don't  want  them  to shift  that  burden  over  to                                                                    
     intrastate  shippers.   In  fact,  there's federal  law                                                                    
     that  says ...  one side  shouldn't be  subsidizing the                                                                    
     other side.                                                                                                                
                                                                                                                                
Number 1210                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  suggested,  "But  here  you're  going                                                               
farther than that.  You're saying they cannot even consider it."                                                                
                                                                                                                                
MS. LEVY responded:                                                                                                             
                                                                                                                                
     When  evaluating intrastate  rates, that  ... shouldn't                                                                    
     be  the  basis  for  determining  what  an  appropriate                                                                    
     intrastate rate is.  The  basis is, what are the needs,                                                                    
     what's the cost of service  on the intrastate side. ...                                                                    
     What  you need  to  know  is:   what  was  the cost  of                                                                    
     building the pipeline?  But  you don't need to know how                                                                    
     much  you got  from interstate  shippers in  income and                                                                    
     revenues; you just need to  know what the overall costs                                                                    
     are and then  say, "Here's the fair amount  to be borne                                                                    
     by our in-state shippers."                                                                                                 
                                                                                                                                
REPRESENTATIVE GUTTENBERG  commented that  he doesn't  think they                                                               
necessarily need  to know  how much  was collected,  but possibly                                                               
need to know the methodology for how that number was derived.                                                                   
                                                                                                                                
Number 1102                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  referred  to  Representative  Guttenberg's                                                               
concern and  the language  cited above  [Section 4,  beginning on                                                               
page 4,  line 30].   He  asked whether Ms.  Levy was  saying that                                                               
both are considered, but that  because too little is obtained for                                                               
one doesn't mean the cost can be shifted to the other.                                                                          
                                                                                                                                
MS.  LEVY  said  that's  right,   if  she  understood  correctly.                                                               
Suggesting  perhaps some  language improvement  is in  order, she                                                               
highlighted an  important distinction between  revenues collected                                                               
and what  pipeline cost requirements  are:  "It's  appropriate to                                                               
consider all of  the costs; it's not appropriate  to consider the                                                               
revenues from the interstate side."  She asked if that helped.                                                                  
                                                                                                                                
REPRESENTATIVE GATTO  said no, but acknowledged  Ms. Levy's point                                                               
that perhaps the language needs to be clearer.                                                                                  
                                                                                                                                
Number 0978                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA continued with  Section 4, asking why the                                                               
revenue wouldn't be evidence of what the proper costs were.                                                                     
                                                                                                                                
MS. LEVY replied:                                                                                                               
                                                                                                                                
     If the pipeline costs $1,000  to build and that was the                                                                    
     investment,  ...  and  let's  say  90  percent  of  the                                                                    
     shipments   are   interstate   and   10   percent   are                                                                    
     intrastate,  then  you'd   think  that  the  interstate                                                                    
     shippers should  bear $900 and the  intrastate shippers                                                                    
     should bear  $10.   Now, what I'm  saying is,  the cost                                                                    
     was important for the commission  to know.  They needed                                                                    
     to know the total cost so  that they could say, "Ah, 10                                                                    
     percent must  be borne by the  intrastate shippers; the                                                                    
     rates ... will allow them to collect $10."                                                                                 
                                                                                                                                
     They don't need  to know the revenues  collected on the                                                                    
     interstate  side, because  even  if the  FERC had  only                                                                    
     allowed them  to collect $800,  that doesn't  mean that                                                                    
     the  RCA  should   increase  the  intrastate  shipper's                                                                    
     burden by  another $100.   It  doesn't matter  what the                                                                    
     FERC actually  ended up  setting or  requiring, because                                                                    
     it shouldn't adjust  the intrastate side.   All we need                                                                    
     to know  is what the  cost was  and how much  should be                                                                    
     allocated to those shippers.   If FERC didn't allow the                                                                    
     interstate  enough  or,  alternatively, too  much,  the                                                                    
     remedy   is  for   the  complaining   shipper  or   the                                                                    
     complaining  carrier to  go  to the  FERC  for that  90                                                                    
     percent.                                                                                                                   
                                                                                                                                
REPRESENTATIVE KERTTULA said it still seems perhaps the revenue                                                                 
is some evidence of what the true costs were.  She indicated a                                                                  
desire to move on, however.                                                                                                     
                                                                                                                                
Number 0795                                                                                                                     
                                                                                                                                
MS. LEVY discussed Section 5 as follows:                                                                                        
                                                                                                                                
     Section  5  is  really   intended  to  try  to  address                                                                    
     concerns  that  the  pipeline  carrier  be  allowed  to                                                                    
     configure  its equipment  and hardware  in  a way  that                                                                    
     best provides  the service, and  that if it  chooses to                                                                    
     [replace] some  equipment, to remove something  and add                                                                    
     something else, that it ought to  be able to do so. ...                                                                    
     They have  an incentive to operate  efficiently, and we                                                                    
     want to promote that.                                                                                                      
                                                                                                                                
     At  the  same  time,  the original  language  raised  a                                                                    
     concern that ... a shipper  or the state might not have                                                                    
     the opportunity to  come in and say,  "Gee, what you're                                                                    
     doing may  permanently reduce  capacity or  changes our                                                                    
     transportation  service."     And  so,  we   added  ...                                                                    
     language   here   to    clarify   that,   under   those                                                                    
     circumstances,  the  carrier still  has  to  go to  the                                                                    
     commission.  If  they're permanently reducing capacity,                                                                    
     if  they're reducing  transportation services,  they've                                                                    
     got to go to the commission.                                                                                               
                                                                                                                                
Number 0696                                                                                                                     
                                                                                                                                
MS. LEVY turned attention to Section 6 and said:                                                                                
                                                                                                                                
     Section 6  addresses the interest  rate and, as  I know                                                                    
     ... Chair  Harbour from  the RCA has  said, this  is an                                                                    
     area  appropriate   for  a   policy  decision   by  the                                                                    
     legislature.  The  administration   would  support  the                                                                    
     interest  rate  that's  set  here  as  five  percentage                                                                    
     points   above  the   12th  Federal   Reserve  District                                                                    
     discount  rate  in  effect  on   each  year  for  which                                                                    
     payments are due.   And that language was  used so that                                                                    
     there would  be one interest  rate that applied  due to                                                                    
     the year in which the order came out.                                                                                      
                                                                                                                                
     Sometimes, as you all know,  this rate litigation takes                                                                    
     many  years.   Interest rates  might have  gone up  and                                                                    
     down.    And  it  seemed appropriate  to  us  that  the                                                                    
     interest rates  be determined under this  mechanism for                                                                    
     each of those years, and  the interest rate would apply                                                                    
     to those charges.                                                                                                          
                                                                                                                                
Number 0588                                                                                                                     
                                                                                                                                
MS. LEVY addressed Section 7 as follows:                                                                                        
                                                                                                                                
     Section 7, in  the original language, was  unclear to a                                                                    
     number  of folks.   And  the administration  determined                                                                    
     that  it could  support  and does  support a  statement                                                                    
     that an  order setting  rates [would] not  affect rates                                                                    
     that  were  being  charged before  the  date  that  the                                                                    
     protest  or complaint  was filed.    We believe  that's                                                                    
     what the existing  statutes say.  We've  argued that to                                                                    
     the commission, and  I hope they agree with us.   But I                                                                    
     think all the  parties agree that, if it  said that, it                                                                    
     didn't say  it real clearly,  and so ... this  would be                                                                    
     an improvement in  language to clarify that  ... once a                                                                    
     carrier  is   on  notice  that  its   rates  are  being                                                                    
     challenged,  then that's  the  date  that triggers  the                                                                    
     time for which relief could be provided.                                                                                   
                                                                                                                                
Number 0505                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA asked how far back a challenge can go.                                                                  
                                                                                                                                
MS. LEVY replied:                                                                                                               
                                                                                                                                
     It can vary,  but the protest usually  is made promptly                                                                    
     within a tariff filing, within 15  or 30 days - and I'm                                                                    
     sorry I don't have the statutes  in front of me to tell                                                                    
     you   exactly.     The  commission   can  initiate   an                                                                    
     investigation  at any  time.   And a  complaint can  be                                                                    
     brought at any  time, but ... it's  only prospective in                                                                    
     its relief,  but, again, prospective  from the  date of                                                                    
     the complaint or protest under this language.                                                                              
                                                                                                                                
REPRESENTATIVE  KERTTULA asked,  "So basically  what happens  is,                                                               
the rate  set doesn't take effect  and you file the  protest, and                                                               
that's why  it's prospective."   She requested  confirmation that                                                               
it isn't going backward.                                                                                                        
                                                                                                                                
MS. LEVY  responded, "It's  not going backward.   The  only thing                                                               
that would be going backward is, if  it took four years to get an                                                               
order, the  order would be  applied backward  to the date  of the                                                               
protest or complaint."                                                                                                          
                                                                                                                                
Number 0386                                                                                                                     
                                                                                                                                
MS. LEVY continued, turning attention to Section 8:                                                                             
                                                                                                                                
     This is  a new section  added since the  original House                                                                    
     Bill  277.   The  administration  believes  this is  an                                                                    
     important provision  that clarifies which agency  is in                                                                    
     charge of filing pipeline  tariff complaints before the                                                                    
     regulatory bodies,  and that is the  Department of Law.                                                                    
     And  this   would  just  simply  codify   the  existing                                                                    
     practice  that's  gone  on since  the  time  we've  had                                                                    
     pipelines in this state.                                                                                                   
                                                                                                                                
     We also  would encourage addition of  the language that                                                                    
     the attorney  general would  consult with  the affected                                                                    
     agencies because,  as you  know, Department  of Revenue                                                                    
     is affected - their  production taxes are determined in                                                                    
     part  on   the  netback   value.  ...   Certainly,  the                                                                    
     royalties  under the  Department  of Natural  Resources                                                                    
     [are  affected].   And  this  would  clarify that  that                                                                    
     process ... is the one that applies.                                                                                       
                                                                                                                                
Number 0268                                                                                                                     
                                                                                                                                
MS. LEVY addressed Section 9 as follows:                                                                                        
                                                                                                                                
     Section  9 is  the applicability  section.   This would                                                                    
     provide  that  the  provisions  of  the  Act  apply  to                                                                    
     matters that  are ... proceeding  before the RCA  on or                                                                    
     after the effective  date of this Act.   And that would                                                                    
     make clear that  it does not apply to  Order 151, which                                                                    
     is on  appeal to the superior  court at this time.   So                                                                    
     it's  not  an attempt  to  undo  what  was set  out  in                                                                    
     Order 151.                                                                                                                 
                                                                                                                                
REPRESENTATIVE KERTTULA sought confirmation  that it would impact                                                               
currently  pending cases  if  they were  filed  even before  that                                                               
order was given.                                                                                                                
                                                                                                                                
MS.  LEVY  said that's  right.    She  concluded by  noting  that                                                               
Section 10 provides for an immediate effective date.                                                                            
                                                                                                                                
Number 0041                                                                                                                     
                                                                                                                                
CHAIR FATE  recessed the hearing  at 3:25 p.m.  to a call  of the                                                               
chair.                                                                                                                          
                                                                                                                                
TAPE 03-39, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  FATE reconvened  the hearing  at 8:30  p.m.   Present were                                                               
Representatives   Fate,   Gatto,   Heinze,  Morgan,   and   Wolf;                                                               
Representatives  Lynn, Kerttula,  and Guttenberg  arrived shortly                                                               
thereafter.                                                                                                                     
                                                                                                                                
The committee took a brief at-ease at 8:31 p.m.                                                                                 
                                                                                                                                
Number 0098                                                                                                                     
                                                                                                                                
DAVE   HARBOUR,  Chairman,   Regulatory  Commission   of  Alaska,                                                               
Department of  Community and  Economic Development  (DCED), noted                                                               
that he would submit formal  written testimony but would speak at                                                               
this hearing  personally to  give a brief  overview of  the bill.                                                               
He then  informed members that in  January, a not-well-publicized                                                               
act  took place:    RCA executed  a  memorandum of  understanding                                                               
[MOU] with FERC that provides  additional clarity with respect to                                                               
resource development and transportation in  Alaska.  He read from                                                               
that MOU as follows:                                                                                                            
                                                                                                                                
     The  parties  recognize  that   the  conduct  of  their                                                                    
     responsibilities  has and  will in  the future  require                                                                    
     them  to examine,  regulate, or  otherwise oversee  the                                                                    
     same  facilities or  activities.   The parties  further                                                                    
     recognize the coordination of  their efforts can result                                                                    
     in increased  efficiency and cost  savings to  both the                                                                    
     public  and  regulated  entities.   In  view  of  their                                                                    
     concurrent  regulatory  responsibilities for  TAPS  and                                                                    
     other  Alaska pipelines,  the parties  contemplate that                                                                    
     joint  or concurrent  hearings may  be advisable.   The                                                                    
     parties further  ... contemplate  that absent  joint or                                                                    
     concurrent hearings,  the two agencies  will coordinate                                                                    
     the timing of related decision making, et cetera.                                                                          
                                                                                                                                
Number 0445                                                                                                                     
                                                                                                                                
MR. HARBOUR  offered that since  1972, Alaska has  had regulatory                                                               
certainty with respect  to pipelines by virtue of the  age of the                                                               
pipeline Act.   He related his feeling that many  of the proposed                                                               
amendments to  the commission's jurisdiction over  DR&R appear to                                                               
be driven  by a concern that  the RCA would add  DR&R obligations                                                               
to those  already agreed to  between the carriers and  the state,                                                               
the U.S. Department of the  Interior, and private landowners.  He                                                               
went on to say:                                                                                                                 
                                                                                                                                
     Although  the  RCA ...  authority  may  seem like  it's                                                                    
     broad under the pipeline  Act, as your predecessors the                                                                    
     framers intended, I believe that  the commission only -                                                                    
     and I  can emphasize these two  points more importantly                                                                    
     than any other tonight -  I believe that the commission                                                                    
     asserts two areas of jurisdiction:   (1) to ensure that                                                                    
     sufficient   money  is   collected  and   available  to                                                                    
     complete the DR&R obligations already  agreed to by the                                                                    
     carriers with  the state, the  [U.S. Department  of the                                                                    
     Interior], and  private landowners;  and (2)  to ensure                                                                    
     that the DR&R  is in fact completed  according to those                                                                    
     agreements before  permission is granted by  the RCA to                                                                    
     abandon a pipeline.                                                                                                        
                                                                                                                                
Number 0582                                                                                                                     
                                                                                                                                
MR.  HARBOUR noted  that RCA  now handles  dismantlement, removal                                                               
and restoration at  several times during the life  of a pipeline.                                                               
In setting initial  rates, DR&R is a cost that  must be recovered                                                               
in  rates.   The commission  sets rates  to ensure  that adequate                                                               
DR&R is  collected through tariff  rates, and that the  costs are                                                               
spread  fairly   among  shippers  throughout  the   life  of  the                                                               
pipeline.   He also pointed  out that  setting rates for  DR&R is                                                               
unlike  rate  setting  for  almost   all  other  aspects  of  the                                                               
pipeline.  He explained:                                                                                                        
                                                                                                                                
     When  setting rates,  you  can  quickly understand  and                                                                    
     document  the  costs  of  labor  and  of  vehicles  and                                                                    
     materials  and facilities  and those  sorts of  things.                                                                    
     DR&R,  however, is  a moving  target.   The  regulatory                                                                    
     agency  is obliged  to work  with  the stakeholders  to                                                                    
     determine  what  the   actual  cost  of  dismantlement,                                                                    
     removal,  and restoration  is expected  to  be way  out                                                                    
     there at the end of the  life of the pipeline, and then                                                                    
     update that for ratemaking  purposes on a regular basis                                                                    
     as ... tariff changes and  rates are requested. ... And                                                                    
     it's  the only  body that's  in a  position to  do that                                                                    
     properly.                                                                                                                  
                                                                                                                                
Number 0705                                                                                                                     
                                                                                                                                
MR. HARBOUR discussed changes that would occur under the                                                                        
proposed CS, as follows:                                                                                                        
                                                                                                                                
     First,   our  jurisdiction   over   DR&R  of   pipeline                                                                    
     facilities  is practically  removed.    Second, by  not                                                                    
     allowing the commission to consider  the amount of DR&R                                                                    
     collected  in  interstate  rates  of  a  pipeline  that                                                                    
     transports both  within the state  and for  export, the                                                                    
     bill makes  it impossible for the  commission to assure                                                                    
     that ...  intrastate rates include just  and reasonable                                                                    
     amounts for DR&R.   And third, it removes  but ... does                                                                    
     not resolve a number  of ambiguities in [AS] 42.06.400.                                                                    
     ...                                                                                                                        
                                                                                                                                
     The commission's jurisdiction ...  right now is defined                                                                    
     in AS  42.06 and conforms  to that of  other regulatory                                                                    
     agencies.   The  legislature intended  that the  Alaska                                                                    
     Pipeline   Act   allow   an   objective,   nonpolitical                                                                    
     commission  to  have broad  regulatory  responsibility.                                                                    
     [AS]  42.06.245,  one  of  the   portions  of  the  Act                                                                    
     scheduled  by this  proposal for  change, says,  quote,                                                                    
     "nothing limits  the powers of  the commission  set out                                                                    
     in  this   chapter  except  to  the   extent  they  are                                                                    
     preempted by federal law."                                                                                                 
                                                                                                                                
     When considering  the passage of [AS]  42.06.245, [then                                                                    
     Senator]  Groh ...  and his  colleagues -  the framers,                                                                    
     members of the legislative  committee that proposed the                                                                    
     Act  - said  the  state attempted  to  regulate to  the                                                                    
     maximum  extent possible  but  would  have neither  the                                                                    
     power nor ability if preempted by federal law.                                                                             
                                                                                                                                
Number 0859                                                                                                                     
                                                                                                                                
MR. HARBOUR turned to the issue of fiscal clarity and said:                                                                     
                                                                                                                                
     I'm going to  conclude here by addressing  the issue of                                                                    
     fiscal clarity.   I talked  about it a minute  ago with                                                                    
     respect  to  our  work  with  the FERC.    One  of  the                                                                    
     speakers  before [the  House Special  Committee on  Oil                                                                    
     and  Gas]  on  May  1,  representing  one  of  the  oil                                                                    
     companies, made a statement that  he supports this bill                                                                    
     because  it  helps  correct  many  serious  flaws  that                                                                    
     currently exist  in the Alaska  Pipeline Act.   He went                                                                    
     on  to say  ... these  flaws are  so significant,  they                                                                    
     need  to be  addressed  to ensure  investment in  risky                                                                    
     projects like the Alaska natural gas pipeline.                                                                             
                                                                                                                                
     These are  popular subjects  to discuss,  Mr. Chairman.                                                                    
     I'm  going  to  suggest  to you  that  I  can  probably                                                                    
     convince   members,  if   there's  time   and  interest                                                                    
     sufficient,   that  ...   it  [doesn't   perform]  that                                                                    
     objective.   It  makes cosmetic  improvements, some  of                                                                    
     which  are  helpful,  but ignores  a  number  of  other                                                                    
     improvements  that   we  -  with  the   cooperation  of                                                                    
     industry -  would like  to work on  in the  interim and                                                                    
     recommend as  consensus legislation to  the legislature                                                                    
     and  the  governor  ... for  competent  treatment  next                                                                    
     year.   It  creates a  huge amount  of uncertainty  for                                                                    
     others.                                                                                                                    
                                                                                                                                
Number 0988                                                                                                                     
                                                                                                                                
MR. HARBOUR continued:                                                                                                          
                                                                                                                                
     I want  to give you an  example on this certainty.   In                                                                    
     the last year and a  half or so - particularly, earlier                                                                    
     when  the  Alaska  gas   producers  pipeline  team  was                                                                    
     seriously  investing in  the feasibility  of an  Alaska                                                                    
     gas pipeline, in frequent  presentations - they pointed                                                                    
     out  that  four  criteria  were  essential  for  a  gas                                                                    
     pipeline.   One was  federal enabling  legislation that                                                                    
     would enable any competent, qualified  party to come in                                                                    
     and  apply for  such a  permit -  not just  the earlier                                                                    
     franchisee, ... "the Foothills Group."                                                                                     
                                                                                                                                
     Number two, they proposed  that federal incentives were                                                                    
     required and,  as we speak  tonight, in  Congress those                                                                    
     incentives are being considered,  namely, a floor price                                                                    
     guarantee for  gas, et cetera.   Thirdly, the producers                                                                    
     asked  for   certainty  in  Canada   on  rights-of-way,                                                                    
     particularly  with regard  to First  Nation issues  and                                                                    
     aboriginal  rights-of-way.    And  tonight,  those  are                                                                    
     still   issues.     Fourthly,  they   requested  fiscal                                                                    
     certainty in Alaska.                                                                                                       
                                                                                                                                
Number 1072                                                                                                                     
                                                                                                                                
MR. HARBOUR continued:                                                                                                          
                                                                                                                                
     In my career with the  oil industry over the years with                                                                    
     groups  like  the   Resource  Development  Council  and                                                                    
     others,  we often  discussed fiscal  certainty. ...  We                                                                    
     never  discussed  fiscal  certainty  for  some  in  the                                                                    
     industry at the expense of others.                                                                                         
                                                                                                                                
     We  also discussed,  frequently, regulatory  reform and                                                                    
     improvement -  streamlining.  Earlier this  evening, on                                                                    
     the floor, members were  talking about streamlining the                                                                    
     regulatory process.   The effect of this  bill would be                                                                    
     to   "unstreamline"  the   process  and   provide  some                                                                    
     regulatory  certainty  for  a  few at  the  expense  of                                                                    
     others.                                                                                                                    
                                                                                                                                
Number 1150                                                                                                                     
                                                                                                                                
MR.  HARBOUR  acknowledged that  the  Alaska  Pipeline Act  isn't                                                               
perfect.  Noting that over  the years there have been amendments,                                                               
some of which  "provide some ambiguity that we have  to deal with                                                               
at   the  commission   level,"   he  agreed   that  changes   and                                                               
improvements can be made - but not this type of change.                                                                         
                                                                                                                                
MR. HARBOUR concluded by saying the RCA process itself isn't                                                                    
flawed.  He told the committee:                                                                                                 
                                                                                                                                
     As  an  objective  new member  coming  in  about  three                                                                    
     months ago and evaluating the  process, I would like to                                                                    
     report  to you  tonight that  ... the  commissioners on                                                                    
     this  commission have  been  doing  precisely the  work                                                                    
     that   you  expect   them  to   do  in   an  objective,                                                                    
     nonpolitical way,  making their decisions based  on the                                                                    
     record  before them  that  all  of these  distinguished                                                                    
     opponents and advocates bring before us every day.                                                                         
                                                                                                                                
CHAIR FATE deferred questions to  the next meeting and asked that                                                               
Mr. Harbour stay on teleconference.                                                                                             
                                                                                                                                
Number 1263                                                                                                                     
                                                                                                                                
JERRY  GALLAGHER, Manager,  Government Relations,  ConocoPhillips                                                               
Alaska, Inc. ("ConocoPhillips"), noted  that he was pinch-hitting                                                               
for  Graham   Vanhegan,  vice  president  and   general  counsel.                                                               
Mr. Gallagher  thanked Chair  Fate  and Representative  Dahlstrom                                                               
for putting these  issues on the table.   Stating ConocoPhillips'                                                               
support for  the proposed CS,  he informed members that  he would                                                               
testify about perceived misconceptions.  He said:                                                                               
                                                                                                                                
     We  do  not  believe   that  this  bill  overturns  RCA                                                                    
     decisions.  This  bill looks to the future.   This bill                                                                    
     does   not   legislatively  approve   TAPS   settlement                                                                    
     agreements.    And  this  bill   does  not  remove  RCA                                                                    
     jurisdiction  over   establishing  intrastate  pipeline                                                                    
     tariffs.   Rather,  this bill  is  about certainty  and                                                                    
     clarity of the  RCA's process.  It's  about creating an                                                                    
     atmosphere in the future where  companies, both big and                                                                    
     small,  are  clear about  the  rules  they explore  and                                                                    
     operate under ... and transport oil and gas.                                                                               
                                                                                                                                
Number 1394                                                                                                                     
                                                                                                                                
MR. GALLAGHER continued:                                                                                                        
                                                                                                                                
     We've also heard that this  bill, in some way, seeks to                                                                    
     negatively impact the independents,  the new entrants -                                                                    
     the  smaller companies  - in  our  business in  Alaska.                                                                    
     And that  is absolutely not true.   ConocoPhillips very                                                                    
     much  promotes  the  entry   of  new  players,  smaller                                                                    
     companies,  new  people,  existing players  in  Alaska.                                                                    
     It's evidenced  by our efforts recently,  our work with                                                                    
     companies like Anadarko,  EnCana, Forest Oil, Windstar,                                                                    
     [Pioneer]  - they're  our partners  in projects  on the                                                                    
     North Slope  and in Cook Inlet  - exploration projects,                                                                    
     development  projects, projects  on state  land and  on                                                                    
     federal land.                                                                                                              
                                                                                                                                
     I do want to make a  couple of limited comments about a                                                                    
     few  portions of  the bill,  because it  did change  in                                                                    
     this CS.   Section 1 is  a new section proposed  by the                                                                    
     administration  further  clarifying  the  role  of  the                                                                    
     commissioner of natural  resources as being responsible                                                                    
     for [ensuring] compliance with  pipeline leases. ... We                                                                    
     believe that's  consistent with  the intent  of earlier                                                                    
     versions, and  we support  it.  And  we agree  with the                                                                    
     administration  that  this  current  version  does  not                                                                    
     leave  gaps in  RCA ...  in state  jurisdiction of  the                                                                    
     pipeline.    The  other   amendments  proposed  by  the                                                                    
     administration -  the Sections 2,  3, and 4 -  are also                                                                    
     acceptable to ConocoPhillips.                                                                                              
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
MR. GALLAGHER addressed Section 6 as follows:                                                                                   
                                                                                                                                
     I  do  have  [a]  few  brief  comments  on  Section  6.                                                                    
     Sometimes  we end  up in  litigation.   And  litigation                                                                    
     sometimes ends up in orders  and judgments that are due                                                                    
     with  interest.   The  interest  rate  that applies  to                                                                    
     judgments under the pipeline Act  has always been about                                                                    
     the same  rate that's  been applied to  other judgments                                                                    
     in  the  state.  ...  The   interest  rate  ...  was  a                                                                    
     legislative  decision  in  1978  when  the  legislature                                                                    
     wrote that section of the  Act, and we believe the 1997                                                                    
     tort-reform  amendments  also  changed  the  applicable                                                                    
     interest rate on pipeline Act judgments.                                                                                   
                                                                                                                                
     However, at  this time at  the RCA, it is  being argued                                                                    
     that  the interest  rates on  the  pipeline Act  orders                                                                    
     were not changed.   The amendments originally proposed,                                                                    
     in earlier  versions of this  bill, made it  clear that                                                                    
     the legislature  did not single out  pipeline companies                                                                    
     for ...  different treatment from every  other business                                                                    
     entity.    In  other  words,  the  rate  in  the  other                                                                    
     versions was  exactly the same  as those rates  paid in                                                                    
     other judgments that are issued by the state.                                                                              
                                                                                                                                
     ... The  amendments proposed in  this version  [page 6,                                                                    
     Section  6]  don't  quite  do  that.    They  impose  a                                                                    
     different rate.  The rate  imposed here in this version                                                                    
     is 5  percent above the  federal rate, and  the payment                                                                    
     mechanism is also being changed.   We at ConocoPhillips                                                                    
     ... need to  fully understand that amendment  - we just                                                                    
     saw it  today, as  you did,  in the CS  - and  how that                                                                    
     would impact  our business, and  we're doing  that now.                                                                    
     But I  want to  emphasize that  ConocoPhillips supports                                                                    
     the  [proposed House  Resources Standing  Committee] CS                                                                    
     that is before you and urge you to move this bill.                                                                         
                                                                                                                                
The committee took an at-ease from 8:51 p.m. to 8:52 p.m.                                                                       
                                                                                                                                
Number 1676                                                                                                                     
                                                                                                                                
JIM DECKER, Senior Counsel, BP Pipelines (Alaska) Inc. ("BP"),                                                                  
noted that Al Bolea, president, had asked him to testify in his                                                                 
place.  He told members:                                                                                                        
                                                                                                                                
     BP supports HB 277 because  it will help to provide the                                                                    
     certainty  and   clarity  needed   to  invest   in  the                                                                    
     infrastructure  necessary  for  continued oil  and  gas                                                                    
     investment  in Alaska,  infrastructure  like the  long-                                                                    
     lived Trans-Alaska  Pipeline System.  This  pipeline is                                                                    
     the backbone of the oil  and gas industry in this state                                                                    
     and, in fact, of this state.   The bill provides a more                                                                    
     efficient  state regulatory  framework by  reducing the                                                                    
     degree of  overlap and redundant agency  oversight, and                                                                    
     ensuring that  the right regulatory skills  are brought                                                                    
     to bear.                                                                                                                   
                                                                                                                                
     House  Bill 277  helps to  facilitate three  very large                                                                    
     business priorities  for BP, priorities that  will have                                                                    
     enormous benefits  to Alaska and  to Alaskans.   Let me                                                                    
     briefly describe  them to you.   First, preparation for                                                                    
     the  next  agreement  on TAPS  tariffs:    the  current                                                                    
     tariff  agreement   for  TAPS   is  open   for  renewal                                                                    
     negotiations   effective    January   of    2007.   The                                                                    
     administration  has asked  the  TAPS  owners to  reopen                                                                    
     negotiations now.   A new agreement will  set the stage                                                                    
     for future oil transportation on TAPS.                                                                                     
                                                                                                                                
     For these new tariff  negotiations to be meaningful and                                                                    
     productive,  all  parties  must  be  certain  that  the                                                                    
     agreement will be durable, that  it cannot be rescinded                                                                    
     or  undone at  some point  in the  future.   In today's                                                                    
     world, certainty does not exist  due to deficiencies in                                                                    
     the  Alaska  Pipeline  Act.   Those  deficiencies  will                                                                    
     preclude a meaningful dialog  between the TAPS carriers                                                                    
     and the state,  in spite of the state's  and our strong                                                                    
     desire to reach a new tariff agreement.                                                                                    
                                                                                                                                
Number 1869                                                                                                                     
                                                                                                                                
MR. DECKER continued:                                                                                                           
                                                                                                                                
     When it was first  introduced, House Bill 277 contained                                                                    
     provisions that address this  specific deficiency.  And                                                                    
     I  would encourage  this committee  to ensure  that the                                                                    
     legislation ultimately  passed provides  certainty that                                                                    
     a  tariff agreement  with  the State  of  Alaska is  of                                                                    
     lasting value  - that it cannot  be changed arbitrarily                                                                    
     at  the behest  of  those  who would  opportunistically                                                                    
     seek to  better their position, as  Tesoro and Williams                                                                    
     are   doing   in   challenging  the   existing   tariff                                                                    
     agreement.  Plainly put, we  want to ensure that a deal                                                                    
     made  today will  remain a  deal tomorrow  and for  the                                                                    
     full term of the tariff agreement.                                                                                         
                                                                                                                                
     Also, just  to be clear,  the legislation ...  will not                                                                    
     overturn   any  existing   orders  of   the  Regulatory                                                                    
     Commission  of  Alaska  relating to  the  ...  existing                                                                    
     tariff  agreement,  nor  will  it  ratify  that  tariff                                                                    
     agreement.   But  going forward  into the  future, it's                                                                    
     important, in a new tariff  agreement, that we have the                                                                    
     level of durability  that I indicated, and  that it not                                                                    
     be undone. ...                                                                                                             
                                                                                                                                
Number 1936                                                                                                                     
                                                                                                                                
MR. DECKER continued:                                                                                                           
                                                                                                                                
     Second,  reconfiguration of  TAPS:   as you  know, TAPS                                                                    
     has served  this state well  for almost  three decades.                                                                    
     The pipeline  is sound, and  we are looking  forward to                                                                    
     the next 30 years of operation.   But in order to be as                                                                    
     efficient  and  competitive  as possible,  we  need  to                                                                    
     invest  hundreds of  millions of  dollars in  new pump-                                                                    
     station technology over the next  several years.  These                                                                    
     new investments will provide lower  tariffs as early as                                                                    
     2005.                                                                                                                      
                                                                                                                                
     House  Bill 277  facilitates  this  effort by  reducing                                                                    
     duplicative  agency  oversight   and  enabling  a  more                                                                    
     timely  and  efficient   investment.    Currently,  the                                                                    
     flawed   Alaska  Pipeline   Act  language   causes  the                                                                    
     Regulatory Commission of Alaska  to exert its authority                                                                    
     over areas  already administered  by the  Department of                                                                    
     Natural  Resources  and  other  Joint  Pipeline  Office                                                                    
     agencies.                                                                                                                  
                                                                                                                                
     Third, an Alaska natural gas  project:  for many months                                                                    
     you've heard  about this very big,  very expensive, and                                                                    
     very  risky project,  that there  are ...  a number  of                                                                    
     things  required as  prerequisites for  it to  ... move                                                                    
     ahead:       capital-cost    reduction   through    new                                                                    
     technologies,  U.S.  federal enabling  legislation  ...                                                                    
     and   fiscal  incentives   to  lower   risk,  continued                                                                    
     progress  toward   an  efficient   Canadian  regulatory                                                                    
     environment,  and  a  clear and  certain  [fiscal]  and                                                                    
     regulatory regime in Alaska.                                                                                               
                                                                                                                                
     This  last point  is the  single  most important  thing                                                                    
     that  Alaskans can  do to  support the  delivery of  an                                                                    
     Alaska  gas   pipeline.    This  legislature   and  the                                                                    
     administration  delivered  an  important part  of  this                                                                    
     when it passed the Stranded  Gas Act several weeks ago,                                                                    
     which  provides a  framework  for [fiscal]  negotiation                                                                    
     between project sponsors and the state.                                                                                    
                                                                                                                                
Number 2055                                                                                                                     
                                                                                                                                
MR. DECKER turned attention to the bill:                                                                                        
                                                                                                                                
     That said, I will move  to some specifics on the [House                                                                    
     Resources   Standing   Committee  proposed]   committee                                                                    
     substitute for  HB 277, which BP,  like ConocoPhillips,                                                                    
     generally  supports.   At  Section 1  and  2, the  bill                                                                    
     clarifies the  role of DNR  and the RCA with  regard to                                                                    
     the  state's oil  and gas  leases and  its right-of-way                                                                    
     leases.  It makes clear  that the RCA's jurisdiction is                                                                    
     appropriately  focused   on  intrastate  issues.     At                                                                    
     Section 3, it also  delineates the RCA's authority with                                                                    
     regard to DR&R issues.                                                                                                     
                                                                                                                                
     Earlier this  evening, we  heard Chair  Harbour comment                                                                    
     on concern  that if this  legislation is put  in place,                                                                    
     ... the state could  not consider DR&R collections that                                                                    
     are achieved  through interstate tariffs.   I would ...                                                                    
     refer  the  committee  back  to  Jan  Levy's  testimony                                                                    
     earlier  today   in  this   regard  where   [Ms.  Levy]                                                                    
     commented that ... if the  RCA should go down this road                                                                    
     of  considering interstate  DR&R collections,  it could                                                                    
     put  itself  in a  place  where  -- let's  assume  that                                                                    
     interstate DR&R collections  are viewed as insufficient                                                                    
     by the  RCA.   Then, ...  is the answer  of the  RCA to                                                                    
     that, "Well,  we need to  increase DR&R  collections in                                                                    
     the intrastate"?                                                                                                           
                                                                                                                                
     If  that's   done,  what  you   have  effected   is  an                                                                    
     intrastate subsidy of interstate  oil movement.  It's a                                                                    
     path,  from a  policy  standpoint, that  should not  be                                                                    
     gone  down.   Again,  I  would refer  you  back to  Jan                                                                    
     Levy's  comments  of  earlier this  afternoon  on  this                                                                    
     point.                                                                                                                     
                                                                                                                                
Number 2174                                                                                                                     
                                                                                                                                
MR. DECKER continued:                                                                                                           
                                                                                                                                
     I  would   also  add  to   [Ms.  Levy's]   comments  on                                                                    
     governmental oversight  of the  DR&R that,  in addition                                                                    
     to  the Department  of Natural  Resources, the  federal                                                                    
     Bureau  of Land  Management  [BLM]  will oversee  DR&R.                                                                    
     Under TAPS  agreements with the  federal ...  Bureau of                                                                    
     Land  Management, the  BLM will  oversee  DR&R for  the                                                                    
     entirety  of TAPS  - federal  lands,  state lands,  and                                                                    
     private lands - as a  matter of contract.  In addition,                                                                    
     as  [Ms.  Levy]  referred to,  you  have  Environmental                                                                    
     Protection   Agency   [EPA]    oversight   and   Alaska                                                                    
     Department   of    Environmental   Conservation   [DEC]                                                                    
     oversight  with regard  to  their environmental  merit.                                                                    
     There is a ... large  amount of regulatory oversight of                                                                    
     DR&R.                                                                                                                      
                                                                                                                                
     With  regard  to Representative  Guttenberg's  question                                                                    
     ... of Ms.  Levy about financial security  to cover the                                                                    
     DR&R  obligation, I  would add  again  to [Ms.  Levy's]                                                                    
     comments that  there are guarantees in  place from each                                                                    
     of  the  TAPS  owners  to both  to  the  Department  of                                                                    
     Natural  Resources and  to the  BLM to  cover the  DR&R                                                                    
     obligations.   And under  the recently  renewed federal                                                                    
     right-of-way,  the  federal   government  will  be  ...                                                                    
     auditing  the   financial  wherewithal  of   ...  those                                                                    
     guarantors  at least  every three  years over  the next                                                                    
     30-year term.  And, again,  I would remind you that the                                                                    
     federal right-of-way covers DR&R  as to the entirety of                                                                    
     the line.                                                                                                                  
                                                                                                                                
Number 2279                                                                                                                     
                                                                                                                                
MR. DECKER discussed concerns:                                                                                                  
                                                                                                                                
     At  the   same  time  ...  we   generally  support  the                                                                    
     substitute  from the  administration, we  do have  some                                                                    
     concerns ... with the legislation.   We would like more                                                                    
     clarity  around what  it means  to "permanently  reduce                                                                    
     capacity" as is referred to at Section 5.                                                                                  
                                                                                                                                
     Also,  the  bill has  some  ambiguous  language in  it,                                                                    
     which we'd  like to see  corrected.  And I  would refer                                                                    
     the committee  to Section  4.   And, frankly,  it's the                                                                    
     same  language  that  was  the  subject  of  a  lot  of                                                                    
     discussion,  which  pertains  to  allocation  of  costs                                                                    
     between   inter-  and   intrastate  service.   This  is                                                                    
     something that  this committee  grappled with  for some                                                                    
     time this  afternoon and, frankly, we've  grappled with                                                                    
     it  too.   The explanation  that Ms.  Levy ...  gave, I                                                                    
     thought,  was quite  good.   But I  think the  language                                                                    
     could use a bit of work.                                                                                                   
                                                                                                                                
Number 2335                                                                                                                     
                                                                                                                                
MR. DECKER continued discussing concerns:                                                                                       
                                                                                                                                
     Finally,  the interest  rate on  refunds  at Section  6                                                                    
     should  be   the  same  rate  that   is  applicable  to                                                                    
     judgments.   This is the  same thing you've  just heard                                                                    
     from   ConocoPhillips.       There's   no   reason   to                                                                    
     differentiate  ...  an  interest  rate  that  would  be                                                                    
     ascribed to a  refund from an interest  rate that would                                                                    
     be due on a judgment.                                                                                                      
                                                                                                                                
     There's  also another  technical  point.   The way  the                                                                    
     substitute  legislation would  provide for  an interest                                                                    
     rate  is  by  ...   replicating,  within  the  statute,                                                                    
     interest  language.   And I  think that  is not  a good                                                                    
     idea.  I think the better  way to do it is by referring                                                                    
     to the  statute elsewhere  in the  law, outside  of the                                                                    
     Alaska Pipeline  Act, which provides for  interest.  By                                                                    
     doing that,  we will  have the use  of case  law behind                                                                    
     that  statute  in  an   Alaska  Pipeline  Act  context.                                                                    
     Otherwise,   if  you   replicate  interest   provisions                                                                    
     directly in  the statute, ...  the legislature  and ...                                                                    
     those who  are regulated under the  Alaska Pipeline Act                                                                    
     could be cut off from those authorities.                                                                                   
                                                                                                                                
Number 2435                                                                                                                     
                                                                                                                                
MARK HANLEY, Public Affairs Manager, Alaska; Anadarko Petroleum                                                                 
Corporation, noting that his company is a large independent,                                                                    
told members the following:                                                                                                     
                                                                                                                                
     The big  issue for  Anadarko is  reasonable rates.   We                                                                    
     really  want to  have reasonable  rates.   The cost  of                                                                    
     shipping oil  down a pipeline impacts  the economics of                                                                    
     our prospects.   We want to look for oil.   The more it                                                                    
     costs us, the less economic  our prospects are. ... And                                                                    
     we  see  the RCA  as  the  agency who  guarantees  that                                                                    
     shippers and  ratepayers have  reasonable rates,  so we                                                                    
     look  at  them as  someone  who  protects that  ability                                                                    
     [and]  evaluates  the  issues  that are  out  there  to                                                                    
     ensure those rates are reasonable.                                                                                         
                                                                                                                                
     I would  also say that access  is a very big  issue for                                                                    
     us.   And some of you  have heard me talk  about access                                                                    
     to a  gas line that may  be built.  I  would say access                                                                    
     even to an  oil line is very important to  us.  In many                                                                    
     respects,  if you  look through  the statutes,  the RCA                                                                    
     has  the  authority  and  the  responsibility  to  make                                                                    
     interconnection  policies ...  and  decisions on  those                                                                    
     kind of  issues.  So  for us, again, as  a non-pipeline                                                                    
     owner,  getting  access  to those  facilities  is  very                                                                    
     important, and the RCA has an important role to play.                                                                      
                                                                                                                                
Number 2556                                                                                                                     
                                                                                                                                
MR. HANLEY continued:                                                                                                           
                                                                                                                                
     We are,  as you heard  earlier, ... partners  with some                                                                    
     of the companies who've testified  here and, in fact, I                                                                    
     would  say ConocoPhillips  is a  very  good partner  of                                                                    
     ours.     We're  very   happy  about   their  generally                                                                    
     aggressive  approach  to   exploration,  which  matches                                                                    
     ours.   We are exploring  with them in  NPR-A [National                                                                    
     Petroleum  Reserve-Alaska].  ...   But  there  comes  a                                                                    
     difference.  We're partners in  exploration; we are not                                                                    
     partners  in the  pipeline.   We  do have  part of  the                                                                    
     Alpine   pipeline,   but  largely,   the   trans-Alaska                                                                    
     pipeline, ... we're  not an owner of that.   So in this                                                                    
     case, we are different from  them. ... For instance, if                                                                    
     the costs  are [shifted]  to the  transportation sector                                                                    
     in excessive rates,  we don't get to  recoup it through                                                                    
     ... increased  transportation recoveries, as  would our                                                                    
     partner ConocoPhillips.                                                                                                    
                                                                                                                                
     And,  in fact,  as I  pointed out  in other  testimony,                                                                    
     there  is  a bit  of  an  incentive to  have  excessive                                                                    
     transportation  rates,  because  the  way  the  state's                                                                    
     royalty is paid,  ... the way you get  back to wellhead                                                                    
     is   to  deduct   those  transportation   costs.     So                                                                    
     essentially,  in rough  terms, out  of every  dollar in                                                                    
     transportation   costs   that   are  above   just   and                                                                    
     reasonable,  the  state  is  paying  25  cents  on  the                                                                    
     dollar.  So  not only can someone make  an immediate 25                                                                    
     percent  profit  on excessive  rates,  but  they get  a                                                                    
     competitive   advantage  over   companies  that   can't                                                                    
     collect  those  monies   through  those  transportation                                                                    
     costs because we're not pipeline owners.                                                                                   
                                                                                                                                
Number 2620                                                                                                                     
                                                                                                                                
MR. HANLEY continued:                                                                                                           
                                                                                                                                
     Now,  in December  of  last year,  the  RCA ruled  that                                                                    
     transportation costs  on the trans-Alaska  pipeline for                                                                    
     intrastate rates were excessive:   57 to 70 percent too                                                                    
     high, a  dollar to  a dollar-fifty  a barrel  too high.                                                                    
     Those  kinds of  dollars make  a significant  impact to                                                                    
     companies like  us.   If we're  paying those  rates and                                                                    
     they're too  high, it really  affects the  economics of                                                                    
     our fields.   So, for us,  it is critical that  the RCA                                                                    
     have the  ability to review  those rates  and determine                                                                    
     if they're just and reasonable. ...                                                                                        
                                                                                                                                
MR. HANLEY referred to earlier  suggestions that the bill creates                                                               
an  atmosphere  whereby  companies   will  have  certainty.    He                                                               
disagreed, saying,  "We're one of  the other companies.   We're a                                                               
new  company, and  I'm telling  you,  we have  very much  concern                                                               
about this  bill.  We think  it creates uncertainty."   He echoed                                                               
Mr. Harbour's comment  that this may create  fiscal certainty for                                                               
some at the expense of others  and that it makes the process less                                                               
streamlined.    He  added,  "Anything   that  removes  the  RCA's                                                               
authority to  review those rates is  a concern to us,  because we                                                               
see  them as  protecting not  only ratepayers  in the  state, but                                                               
shippers like us."                                                                                                              
                                                                                                                                
[Chair Fate interjected to suggest  that Mr. Burden, calling from                                                               
a cell  phone at an  airport, be  allowed to testify;  Mr. Hanley                                                               
concurred with continuing his own testimony afterwards.]                                                                        
                                                                                                                                
Number 2799                                                                                                                     
                                                                                                                                
GENE BURDEN, Senior Vice President of Government Relations,                                                                     
Tesoro Petroleum Corporation, told members:                                                                                     
                                                                                                                                
     Tesoro,  Williams, and  Anadarko oppose  this bill  and                                                                    
     ... have made  that known throughout the  process.  And                                                                    
     it's  interesting  when  you  take  a  look  at  common                                                                    
     denominators  in  Alaska's   development  strategy  and                                                                    
     interest in developing the  state - its infrastructure,                                                                    
     creating jobs,  and a balanced  future for the  state -                                                                    
     that  a couple  of things  always come  out.   This has                                                                    
     come out in economic reports and reviews for years.                                                                        
                                                                                                                                
     One  is that  Alaska really  needs to  stimulate value-                                                                    
     added  businesses,   and,  two,  we  need   to  attract                                                                    
     independent  exploration-and-production  activities  to                                                                    
     pick up production  in fields that may no  longer be of                                                                    
     interest  to the  larger oil  companies.   It's  ironic                                                                    
     that ...  the two  largest successful  illustrations of                                                                    
     value-added  -  that  probably, combined,  employ  over                                                                    
     1,200  Alaskans -  continue to  attempt  to convey  our                                                                    
     serious concerns about this  legislation, about what it                                                                    
     does to diminish the independent  authority of the RCA,                                                                    
     what  it does  to  raise the  prospect  of tariffs  and                                                                    
     issues  vital to  our businesses  and to  the State  of                                                                    
     Alaska, ... and  tender those over to the  state and to                                                                    
     the owners  of TAPS to  come up with agreements  ... or                                                                    
     settle issues  that impact us  all.  And it's  not just                                                                    
     the  value-added  businesses  in E&P  [exploration  and                                                                    
     production]; it's every Alaskan.                                                                                           
                                                                                                                                
Number 2898                                                                                                                     
                                                                                                                                
MR. BURDEN continued:                                                                                                           
                                                                                                                                
     And  ... I  guess,  in a  sense, this  is  an issue  of                                                                    
     fairness.  I hear a  lot of talk about wanting economic                                                                    
     certainty.  I would  suggest the  TAPS owners  have had                                                                    
     enormous  economic certainty  since the  agreement that                                                                    
     they reached in  1987.  RCA suggested  that they've had                                                                    
     economic certainty to the tune  of an extra $10 billion                                                                    
     in charges.                                                                                                                
                                                                                                                                
     ... In [the  House Special Committee on Oil  and Gas] I                                                                    
     commented  on a  common  recurring  statement that  was                                                                    
     being  made by  proponents  of this  legislation.   The                                                                    
     representative  of  BP  repeated  it  tonight  and,  as                                                                    
     Ronald Reagan used  to say, "There you go  again."  The                                                                    
     settlement that  was reached on TSM  expressly provided                                                                    
     for  Tesoro,  Williams, and  others  to  seek just  and                                                                    
     reasonable rates.  ... And to continue  to suggest that                                                                    
     ... this effort by Tesoro  and Williams - I believe the                                                                    
     term  was "opportunistic"  - is  just  rubbish. ...  We                                                                    
     need to  get beyond misrepresentation of  the facts and                                                                    
     try to  have the opportunity  to have dialog  on issues                                                                    
     that   are  pertinent   ...  to   what's  before   this                                                                    
     committee.                                                                                                                 
                                                                                                                                
MR. BURDEN  referred to Mr.  Harbour's testimony and  agreed that                                                               
there  are  too  many  issues  that need  scrutiny  in  order  to                                                               
understand the  implication for the  state to see  this hurriedly                                                               
pushed through.   He asked what the  rush is.  [Not  on tape, but                                                               
reconstructed  from the  committee  secretary's  log notes,  were                                                               
Mr. Burden's comments  about wanting  fair and  reasonable rates,                                                               
and not wanting someone else to be setting those rates.]                                                                        
                                                                                                                                
TAPE 03-39, SIDE B                                                                                                            
Number 2980                                                                                                                     
                                                                                                                                
MR. BURDEN concluded:                                                                                                           
                                                                                                                                
     This  bill does  still provide  some backward  look, we                                                                    
     think,  ...  that  would have  an  impact  on  measures                                                                    
     already underway or that have  been decided by the RCA.                                                                    
     ... It's  just not a  bill whose  time ... is  here, in                                                                    
     our opinion, and  we urge the committee  to really take                                                                    
     a look at  this ... and not hastily  move this forward.                                                                    
     I  realize there  is tremendous  political pressure  in                                                                    
     regards  to this,  but the  interests of  the State  of                                                                    
     Alaska, and the value-added  components of the state as                                                                    
     well  as  the  independent E&P  companies,  are  really                                                                    
     impacted by the decisions made on this measure.                                                                            
                                                                                                                                
Number 2882                                                                                                                     
                                                                                                                                
MR.  HANLEY returned  to  his testimony.    He expressed  concern                                                               
about mention of wanting to add  back in a section removed in the                                                               
[House  Special Committee  on Oil  and Gas].   The  original bill                                                               
allowed rates  to be set  via a settlement agreement  between two                                                               
parties  and the  attorney general,  with no  public process,  no                                                               
review, and no appeal; thus people  who came in would have to pay                                                               
those rates.   Mr.  Hanley explained that,  to his  company, this                                                               
was  the  most  onerous  section  of  the  bill.    He  expressed                                                               
appreciation  that it  had been  removed, but  reiterated concern                                                               
about bringing it back.                                                                                                         
                                                                                                                                
Number 2836                                                                                                                     
                                                                                                                                
MR. HANLEY addressed comments made by the Attorney General                                                                      
Renkes [before the House Special Committee on Oil and Gas]:                                                                     
                                                                                                                                
     I  would just  like to  point out  a couple  of things.                                                                    
     First, Attorney  General Renkes testified on  behalf of                                                                    
     the governor,  the DNR, the Department  of Revenue, and                                                                    
     the Department  of Law at  the last  committee hearing,                                                                    
     and I'd just  like to read a little bit,  if I may, Mr.                                                                    
     Chairman.     It   said  Section   9,  which   was  the                                                                    
     retroactive  interest-rate  section,   would  make  the                                                                    
     interest provision retroactive to '97.                                                                                     
                                                                                                                                
     Some have  said the provision is  unconstitutional.  We                                                                    
     don't think that's  correct, but we do  believe at this                                                                    
     time we can't support it, as  a matter of fairness.  We                                                                    
     think  the place  to address  the Order  151, which  we                                                                    
     were just discussing, is in  the appeal process and not                                                                    
     through  this legislation.   And  so that  section that                                                                    
     supposedly made interest  rates retroactive, because it                                                                    
     did say  they were retroactive  to August of  some time                                                                    
     in '97, was taken out.                                                                                                     
                                                                                                                                
     I  will tell  you that  I  think the  bill still  makes                                                                    
     interest  rates retroactive.   I  don't know  that that                                                                    
     was the intent.  I don't  think that's what he said - I                                                                    
     don't think he said it was  fair to do that, but I will                                                                    
     tell you, when  you apply, in the very  last section of                                                                    
     the  bill,  ...  it  says, "this  Act  applies  to  any                                                                    
     matters  pending   before  the   regulatory  commission                                                                    
     involving  pipelines  or  a  pipeline  carrier  on  the                                                                    
     effective date of  this Act."  So this  bill will apply                                                                    
     to any matters.                                                                                                            
                                                                                                                                
Number 2772                                                                                                                     
                                                                                                                                
MR. HANLEY continued addressing the attorney general's remarks:                                                                 
                                                                                                                                
     My understanding is  that this matter -  on whether you                                                                    
     pay the 10.5  percent interest that is  listed right in                                                                    
     the  statue  essentially  now, or  the  other  rate  of                                                                    
     interest that  was adopted  during tort  reform -  is a                                                                    
     discussion and a case that  is occurring before the RCA                                                                    
     right now.                                                                                                                 
                                                                                                                                
     So, if  this bill  is adopted, I  believe that  it will                                                                    
     impose whatever  the interest rate  is in  this section                                                                    
     and tell  them that that  is the rate; it's  an ongoing                                                                    
     case.  ... I  don't  think that  was  the intent  here,                                                                    
     because he said  he did not believe it was  a matter of                                                                    
     fairness to  retroactively do that, but  I believe that                                                                    
     that's what this bill does.   So I just wanted to raise                                                                    
     that as a point of interest.                                                                                               
                                                                                                                                
Number 2745                                                                                                                     
                                                                                                                                
MR. HANLEY continued :                                                                                                          
                                                                                                                                
     It's interesting that some of  the other companies have                                                                    
     suggested they  don't want retroactive  ratemaking, and                                                                    
     yet the  provisions of  this bill  are applying  to ...                                                                    
     not  just  the  interest  rate; any  rate  case  that's                                                                    
     pending before this legislation, it will apply to.                                                                         
                                                                                                                                
     Now,  if you  don't  want to  be  backward looking  but                                                                    
     forward  looking, as  people have  said, you  would say                                                                    
     something  to the  effect that  this bill  only affects                                                                    
     cases  filed after  the effective  date  of this  bill.                                                                    
     And I would  suggest to you that if you're  going to go                                                                    
     backwards, ... you might need to  get a list of all the                                                                    
     cases and  see how  they'll be  affected by  this bill,                                                                    
     because  you're going  to  retroactively change  those.                                                                    
     ... And  I don't  know that  that's what  was intended,                                                                    
     but I  believe that is one  of the issues that  I think                                                                    
     is a concern.                                                                                                              
                                                                                                                                
     Some  people say,  "Well, why  does Anadarko  care? ...                                                                    
     That's  not your  case."   Well, ...  in the  future we                                                                    
     would hope  that if  you go  into a  case based  on the                                                                    
     deal at the  time - the statutes at the  time - and you                                                                    
     win  a   case,  that  somebody  doesn't   come  to  the                                                                    
     legislature and try and  change the deal retroactively.                                                                    
     ... We just  think it's a matter of  fairness, as well,                                                                    
     as the  attorney general said,  and that  these things,                                                                    
     if  they're going  to be  applied, we  can debate  them                                                                    
     about the  future, but should they  apply retroactively                                                                    
     to Acts that are ongoing?  I don't think so.                                                                               
                                                                                                                                
Number 2680                                                                                                                     
                                                                                                                                
MR. HANLEY referred to assertions that the bill improves                                                                        
clarity.  He brought attention to Section 2, where it says the                                                                  
commission shall regulate pipelines  and pipeline carriers in the                                                               
state,  with new  language that  reads  "but only  to the  extent                                                               
applicable   to  the   delivery   of  intrastate   transportation                                                               
services".    Noting that  pipelines  and  pipeline carriers  are                                                               
defined, he suggested for  clarity that intrastate transportation                                                               
services need to be defined also.  He continued:                                                                                
                                                                                                                                
     I  would just  point out  that in  the statute,  if you                                                                    
     look down  further on  page 3, one  of the  things that                                                                    
     the commission  regulates is  they require  permits for                                                                    
     construction,     enlargement,      connection,     and                                                                    
     interconnection.   I've just  posed a  question because                                                                    
     now they're being told "only  intrastate services".  If                                                                    
     we find  oil and we want  to connect to a  pipeline and                                                                    
     we're denied  that, under the  current system  RCA will                                                                    
     determine whether that's appropriate or not.                                                                               
                                                                                                                                
Number 2614                                                                                                                     
                                                                                                                                
MR. HANLEY continued:                                                                                                           
                                                                                                                                
     It  appears to  me,  because they  can  only deal  with                                                                    
     intrastate services, that we are  going to have to tell                                                                    
     people  that the  oil we  produce is  only going  to go                                                                    
     intrastate.   Otherwise,  the  commission doesn't  have                                                                    
     the  authority  to   deal  with  these  interconnection                                                                    
     activities.                                                                                                                
                                                                                                                                
     And  I  would  suggest that,  throughout  the  statute,                                                                    
     there are issues  about whether two or more  gas or oil                                                                    
     pipeline facilities  should be constructed -  these are                                                                    
     things  that  the RCA  has  the  ability to  determine,                                                                    
     whether it's in the  state's best interest to duplicate                                                                    
     facilities.                                                                                                                
                                                                                                                                
     If somebody  comes in and  says, "I'm only  shipping my                                                                    
     oil  out  of  state,"  that's  not  ...  an  intrastate                                                                    
     service.    And  I  would suggest  to  you,  with  this                                                                    
     language,   ...  the   argument  would   be  that   the                                                                    
     commission no longer has the  authority, if we're going                                                                    
     to guarantee we're shipping our  oil out of state.  And                                                                    
     if that's not  the intent, then it needs  to be cleared                                                                    
     up.  But  I think it creates a problem  in the statute.                                                                    
     ...                                                                                                                        
                                                                                                                                
Number 2570                                                                                                                     
                                                                                                                                
MR. HANLEY continued:                                                                                                           
                                                                                                                                
     I would suggest that the  issue we're struggling over -                                                                    
     and I think other people  have suggested does need some                                                                    
     work   on    -   revenue   collected    on   interstate                                                                    
     transportation:   the commission  ... can only  look at                                                                    
     costs, not revenues.  And  I would suggest to you, it's                                                                    
     fairly  complicated,  and  I do  think  it  needs  some                                                                    
     clarification. ... I think Ms.  Levy ... suggested that                                                                    
     ...  they   allocate  the  correct   percentage  across                                                                    
     intrastate  versus  interstate,  and ...  you  look  at                                                                    
     cost.                                                                                                                      
                                                                                                                                
     Well, the  interesting thing  is, it's  one pipe.   And                                                                    
     the  amount for  DR&R to  remove  that pipe  - even  if                                                                    
     everybody agrees  with the costs,  both on  the federal                                                                    
     side and  the state side -  is a specific number.   How                                                                    
     you allocate that gets pretty  interesting.  50 percent                                                                    
     of it  goes across state  lands; should the  state have                                                                    
     to  collect, through  intrastate rates,  50 percent  of                                                                    
     it?  I  don't think that's the intent,  but that's part                                                                    
     of the problem if you can't look at some of the rates.                                                                     
                                                                                                                                
     ... Mr.  Harbour, in his  analysis, suggests  that with                                                                    
     this change  in this language, it  creates problems for                                                                    
     [RCA]  and  they  may have  to  overcollect  intrastate                                                                    
     rates.    It  concerns  us.   When  we  read  that  the                                                                    
     chairman  of the  RCA suggests  that this  language ...                                                                    
     could  require them  to  overcollect intrastate  rates,                                                                    
     that means that  we're going to pay a  higher rate than                                                                    
     we should.  ... When we  hear the people  that regulate                                                                    
     and they say this language  is a problem, we think it's                                                                    
     a problem.                                                                                                                 
                                                                                                                                
Number 2471                                                                                                                     
                                                                                                                                
MR. HANLEY noted that he had other issues that Mr. [Robin] Brena                                                                
would address.  He concluded with the following:                                                                                
                                                                                                                                
     I just  want to leave you  with the fact that  we are a                                                                    
     producer.   We're  not a  pipeline owner.  ... We  feel                                                                    
     like  the RCA  is  there to  protect  the interests  of                                                                    
     shippers, ratepayers, and even  the state in this case,                                                                    
     and  we think  this bill  actually  goes too  far.   We                                                                    
     think it  removes the authority  of the RCA to  do that                                                                    
     protection, and  we think that  puts us at risk.   That                                                                    
       means it increases our risk of exploration in the                                                                        
     state, and that's why we're concerned.                                                                                     
                                                                                                                                
Number 2410                                                                                                                     
                                                                                                                                
CHAIR FATE announced that questions would be addressed when the                                                                 
hearing continued on Friday [May 9].  [HB 277 was held over.]                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The House Resources Standing Committee was recessed at 9:30 p.m.                                                                
[The meeting was reconvened May 9, 2003.]                                                                                       

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