Legislature(2003 - 2004)

02/16/2004 01:35 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 16, 2004                                                                                        
                           1:35 p.m.                                                                                            
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Nancy Dahlstrom, Co-Chair                                                                                        
Representative Beverly Masek, Co-Chair                                                                                          
Representative Cheryll Heinze, Vice Chair                                                                                       
Representative Carl Gatto                                                                                                       
Representative Bob Lynn                                                                                                         
Representative Nick Stepovich                                                                                                   
Representative Kelly Wolf                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 296                                                                                       
"An Act making an appropriation to the Alaska Natural Gas                                                                       
Development Authority; and providing for an effective date."                                                                    
                                                                                                                                
     - MOVED SSHB 296 OUT OF COMMITTEE                                                                                          
                                                                                                                                
HOUSE BILL NO. 341                                                                                                              
"An Act relating to the dive fishery management assessment."                                                                    
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 296                                                                                                                  
SHORT TITLE: APPROP: NATURAL GAS DEVELOPMENT AUTHORITY                                                                          
SPONSOR(s): REPRESENTATIVE(s) CROFT                                                                                             
                                                                                                                                
05/02/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/02/03       (H)       O&G, RES, FIN                                                                                          
01/20/04       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
01/20/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/20/04       (H)       O&G, RES, FIN                                                                                          
02/10/04       (H)       O&G AT 1:00 PM CAPITOL 124                                                                             
02/10/04       (H)       Moved SSHB 296 Out of Committee                                                                        
02/10/04       (H)       MINUTE(O&G)                                                                                            
02/11/04       (H)       RES AT 2:00 PM CAPITOL 124                                                                             
02/11/04       (H)       <Pending Referral>                                                                                     
02/12/04       (H)       O&G RPT 4DP 1DNP 1NR                                                                                   
02/12/04       (H)       DP: HEINZE, CRAWFORD, KERTTULA,                                                                        
02/12/04       (H)       MCGUIRE; DNP: KOHRING; NR: HOLM                                                                        
02/16/04       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE ERIC CROFT                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of SSHB 296.                                                                          
                                                                                                                                
HAROLD HEINZE, Chief Executive Officer                                                                                          
Alaska Natural Gas Development Authority                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  During discussion of SSHB 296, discussed                                                                   
ANGDA's history and participation in the gas line.                                                                              
                                                                                                                                
STEVEN B. PORTER, Deputy Commissioner                                                                                           
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:      During   discussion   of   SSHB   296,                                                               
characterized ANGDA as a very effective tool and participant in                                                                 
the overall process.                                                                                                            
                                                                                                                                
ROBERT VALDATTA, Member                                                                                                         
City Council                                                                                                                    
City of Seward                                                                                                                  
Seward, Alaska                                                                                                                  
POSITION STATEMENT:  During discussion of SSHB 296, offered an                                                                  
opinion regarding the possible route of a proposed pipeline.                                                                    
                                                                                                                                
NELS ANDERSON                                                                                                                   
Dillingham, Alaska                                                                                                              
POSITION STATEMENT:  Urged the committee to approve SSHB 296.                                                                   
                                                                                                                                
DOROTHY ANDERSON                                                                                                                
Dillingham, Alaska                                                                                                              
POSITION STATEMENT:  During discussion of SSHB 296, urged the                                                                   
committee to support the request of the funds necessary to                                                                      
perform the feasibility study.                                                                                                  
                                                                                                                                
PAUL FUHS, Volunteer Lobbyist                                                                                                   
for Backbone 2                                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of SSHB 296.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-4, SIDE A                                                                                                             
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIR  BEVERLY  MASEK  called  the  House  Resources  Standing                                                             
Committee meeting to  order at 1:35 p.m.   Representatives Masek,                                                               
Dahlstrom, Heinze,  Wolf, Gatto,  Lynn, Guttenberg,  and Kerttula                                                               
were  present at  the call  to order.   Representative  Stepovich                                                               
arrived as the meeting was in progress                                                                                          
                                                                                                                                
HB 296-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY                                                                              
                                                                                                                                
CO-CHAIR MASEK announced  that the first order  of business would                                                               
be SPONSOR SUBSTITUTE  FOR HOUSE BILL NO. 296, "An  Act making an                                                               
appropriation to  the Alaska  Natural Gas  Development Authority;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
Number 0198                                                                                                                     
                                                                                                                                
REPRESENTATIVE ERIC CROFT, Alaska  State Legislature, speaking as                                                               
sponsor of  SSHB 296, explained that  SSHB 296 is a  funding bill                                                               
for the  Alaska Natural Gas Development  Authority (ANGDA), which                                                               
was formed by a voter  initiative that received an overwhelmingly                                                               
favorable  vote.   He said  he  believes it  reflects an  Alaskan                                                               
interest  in inquiring  into whether  the state  should have  any                                                               
ownership interest in the [gas pipeline].   He said there's a lot                                                               
that  the state  can  bring.   This  bill  doesn't mandate  state                                                               
participation, rather it  is the funding mechanism  for the state                                                               
to  explore, develop,  and know  whether a  [gas pipeline]  would                                                               
make sense, he  said.  Representative Croft said  ANGDA was given                                                               
$150,000 of  start-up money  six months  after its  formation and                                                               
was  given  an  additional  $250,000   about  a  year  after  its                                                               
formation.  He said ANGDA is  coming up on its statutory deadline                                                               
to issue a report to the  legislature and to the people regarding                                                               
the benefits it can bring.                                                                                                      
                                                                                                                                
REPRESENTATIVE  CROFT said  he thought  the  benefits of  ANGDA's                                                               
participation could be  extraordinary.  He said  ANGDA is focused                                                               
on bringing  benefits in  terms of  profit as  well as  access to                                                               
natural gas.  He explained that  access to natural gas would help                                                               
with  exploration for  companies that  explore in  Alaska to  get                                                               
their gas  into the pipeline.   Furthermore, access  for Alaskans                                                               
to have  natural gas to  heat their  homes and to  fuel industry.                                                               
One  of the  key  components of  any  state's long-term  economic                                                               
future is a  stable supply of affordable energy and  is what runs                                                               
economies.   He said it  would be a great  shame and an  irony if                                                               
Alaska,  with its  great energy  wealth, held  back its  economic                                                               
development, particularly  in Southcentral, because of  a lack of                                                               
cheap natural  gas.   He remarked,  "It also  can help  lower the                                                               
cost  of  service for  the  producer-owned  or the  MidAmerica[n]                                                               
owned  or any  real combination  of  ... owners  by applying  the                                                               
federal  tax  benefits."   He  said  [ANGDA's participation]  can                                                               
lower  the amount  of the  tariff and  the cost  of service,  and                                                               
significantly   lower   the   cost   of   the   entire   project.                                                               
Representative Croft said,  with this bill, it isn't  too late to                                                               
give ANGDA  the appropriate  amount of  funding to  carry forward                                                               
its  voter-approved mission  and make  an informed  decision with                                                               
regard to  the role Alaska should  take in this.   He highlighted                                                               
the  bipartisan  support  SSHB 296  has.    Representative  Croft                                                               
remarked, "It's  probably the most significant  economic decision                                                               
this state will face in the next  20 years, and we should make an                                                               
informed one."                                                                                                                  
                                                                                                                                
Number 0521                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEPOVICH  asked what  exactly the money  would go                                                               
toward.                                                                                                                         
                                                                                                                                
REPRESENTATIVE CROFT  explained that this discussion  pertains to                                                               
a  $15 billion  project and  whether [the  state] should,  and to                                                               
what extent, have  participation in it.  The  question is whether                                                               
[the state] should invest in  this project itself or whether [the                                                               
state] should  simply have [ANGDA]  extend tax-free  benefits and                                                               
other benefits.   Those are major economic choices, he  said.  As                                                               
Harold  Heinze  [Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority]  testified  [at  a  prior  hearing],  any                                                               
business  entity  would  spend  much more  than  [$2.15  million]                                                               
analyzing   the   risks  and   benefits   of   such  a   project.                                                               
Representative  Croft explained  that  [$2.15]  million would  go                                                               
towards market studies and legal  analysis with regard to how far                                                               
that tax  benefit extends,  so the  [state] is  very sure  of it.                                                               
Various  studies, some  preliminary  engineering, marketing,  and                                                               
legal analysis is key to  the state determining what role [ANGDA]                                                               
should play, he said.                                                                                                           
                                                                                                                                
REPRESENTATIVE CROFT  said [the  state] does not  want to  make a                                                               
$15  billion decision  without being  sure  that it's  conferring                                                               
some benefits, "so  this would prevent us  from making, possibly,                                                               
a great  mistake."  Furthermore,  he said this money  would allow                                                               
[the state] to  reap a tremendous benefit if it  does make sense.                                                               
He said he believes this is  money well spent whether it prevents                                                               
the state  from making the  wrong decision  or allows it  to make                                                               
the  right  decision  on  a  $15 billion  project  that  has  the                                                               
possibility of [earning] billions for the state.                                                                                
                                                                                                                                
Number 0684                                                                                                                     
                                                                                                                                
CO-CHAIR  MASEK   said  the  House   Finance  Committee   is  the                                                               
appropriate  committee to  deal with  the [financial]  impact [of                                                               
the   bill]  and   with  the   appropriations  being   requested.                                                               
Therefore, she  asked members to  abstain from asking  any fiscal                                                               
questions.                                                                                                                      
                                                                                                                                
Number 0709                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO pointed  out  that there  are  a few  other                                                               
issues.   For example,  the tankers for  this [project]  have not                                                               
been built, which  involves The Jones Act and thus  makes it more                                                               
difficult.   Furthermore,  [the state]  does not  have the  pipe,                                                               
which  he  understands   has  to  be  designed   because  [it  is                                                               
necessary]  to  "develop  a  certain   strength  [of  pipe]  that                                                               
currently  is not  developed yet."    He said  there are  certain                                                               
things in  the future that the  state would have to  do, and this                                                               
[legislation] directs  [the state] to  "a place where  we arrive"                                                               
and decide it  is time to build tankers and  design, develop, and                                                               
build pipe,  and "design to get  a workforce."  He  asked if this                                                               
is what the $2.15 million will do.                                                                                              
                                                                                                                                
Number 0786                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CROFT said  Representative Gatto  is quite  right                                                               
with  regard to  the  availability  of the  necessary  pipe.   He                                                               
related his  understanding that  the pipe  that doesn't  exist is                                                               
for the  "6 bcf  high capacity  line".   He said  answering those                                                               
questions  is  very important,  as  is  answering The  Jones  Act                                                               
question of  whether [the state]  can ship to Mexico,  where it's                                                               
technically  not  going  "U.S.  to U.S."    Representative  Croft                                                               
remarked, "If we  have the hull, my understanding  is [The] Jones                                                               
Act  just  requires  that  the hull,  not  the  entire  (indisc.)                                                               
[tanker be constructed  in the U.S.]."  Although  Mr. Heinze gave                                                               
an  excellent presentation  before  the  House Finance  Committee                                                               
regarding   some  of   the  ways   [The  Jones   Act]  would   be                                                               
accommodated,  questions remain  regarding the  tax benefit,  The                                                               
Jones Act restrictions, preliminary  engineering, and some of the                                                               
market  confirmations.    Representative Croft  said  [SSHB  296]                                                               
allows  [the state]  to  make  a very  important  decision on  an                                                               
informed basis.                                                                                                                 
                                                                                                                                
Number 0903                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO asked  how long  gas would  flow given  the                                                               
pipe  diameter, the  size  of  the gas  field,  and the  internal                                                               
pressures.                                                                                                                      
                                                                                                                                
REPRESENTATIVE CROFT replied  that there is 35  trillion in known                                                               
reserves  and there  are  estimates that  there  is another  like                                                               
amount.   However, it's  a difficult  question to  answer because                                                               
natural  gas has  only recently  been searched  for on  the North                                                               
Slope.   All  of the  natural gas  that has  been found  has been                                                               
accidentally found while looking for  oil, he mentioned.  He said                                                               
[the state] has never had  the opportunity [to search for natural                                                               
gas] because  it has never  had a "ready place"  to commercialize                                                               
it.   With regard to the  known reserves at 2  bcf "we're talking                                                               
about  20 years".   However,  most oil  industry observers  think                                                               
there is a tremendous amount more out there.                                                                                    
                                                                                                                                
Number 0978                                                                                                                     
                                                                                                                                
REPRESENTATIVE  LYNN asked  how the  passage of  this bill  would                                                               
impact  negotiations on  the potential  highway  route for  which                                                               
negotiations are now occurring.  He  asked if it would be "a plus                                                               
or a minus."                                                                                                                    
                                                                                                                                
REPRESENTATIVE CROFT replied  that he thought it would  be a plus                                                               
in that  ANGDA has evolved its  thinking to some extent,  in that                                                               
ANGDA views  itself more as  an adjunct,  an assistant to  any of                                                               
these projects.   For example, he  said "doing one portion  of it                                                               
for them; doing a spur line for  them; having a way for their tax                                                               
exempt   status  to   lower   the  cost   of   service  for   any                                                               
participants."    He  remarked,  "More   and  more  I  think  the                                                               
administration and  the authority are seeing  their primary value                                                               
as ways to help whatever project goes forward."                                                                                 
                                                                                                                                
Number 1052                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEPOVICH  said  his understanding  is  ANGDA  is                                                               
taking  on a  different  role than  previously  planned with  the                                                               
other  inclusions  of MidAmerican  and  the  producers, and  that                                                               
there will  be an "incentive  almost for these guys  creating the                                                               
incentive."                                                                                                                     
                                                                                                                                
REPRESENTATIVE CROFT said he didn't  want to imply that ANGDA had                                                               
abandoned its  original role, a stand-alone  model, because ANGDA                                                               
will  still be  investigating whether  it  makes sense  to do  it                                                               
alone.   However,  in light  of  the two  major applications  the                                                               
state has, ANGDA  is seriously considering how it  can help those                                                               
other applications as well.   Representative Croft explained that                                                               
it is thought  that ANGDA could significantly lower  the cost for                                                               
a private entity  or a collection of private  entities wanting to                                                               
do this because  ANGDA's tax exempt status and its  ability to do                                                               
things that private  industry is unable to do.   The applications                                                               
haven't taken away the need for  ANGDA, but have forced it to re-                                                               
evaluate its role,  which is a significant role that  needs to be                                                               
investigated.                                                                                                                   
                                                                                                                                
Number 1143                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEPOVICH asked  if  there is  support from  [the                                                               
producers and from MidAmerican] for ANGDA to obtain this money.                                                                 
                                                                                                                                
REPRESENTATIVE  CROFT said  that  he didn't  know.   However,  he                                                               
pointed out that to date  there hasn't been opposition or support                                                               
from  them,  which   he  interpreted  to  mean   that  they  have                                                               
considered it  the legislature's decision.   Representative Croft                                                               
informed the  committee that  MidAmerican has  expressed interest                                                               
in the ways in which the state might assist.                                                                                    
                                                                                                                                
REPRESENTATIVE HEINZE  remarked that  she viewed  this as  a vote                                                               
from the people  rather than whether the  producers sanctioned it                                                               
or not.   She referred to  the Petroleum News article  [in Volume                                                             
9, Number  7] which discusses  the shift  in ANGDA.   The article                                                               
specifies that the administration  has recommended that it's time                                                               
to  stop  planning  stand-alone LNG  and  rather  [ANGDA]  should                                                               
review spur lines from the  Interior bringing gas to Southcentral                                                               
Alaska, which would supplement declining  Cook Inlet supplies, as                                                               
well as a  smaller line to tide water at  Valdez.  Representative                                                               
Heinze  suggested  that [the  committee]  needs  to review  [this                                                               
legislation] with regard to what is being redefined.                                                                            
                                                                                                                                
REPRESENTATIVE  CROFT  pointed  out  that  one  of  the  ways  to                                                               
maintain tax  exempt status and  add value  to the project  is to                                                               
take a portion of it, an element  of cost of it, with the reduced                                                               
cost of service.  The  aforementioned reduces the overall cost of                                                               
the entire project.  Representative  Croft informed the committee                                                               
that the  administration has expressed  interest in  raising [the                                                               
appropriation]  to  $3  million  and   have  it  go  through  the                                                               
Department  of  Revenue.    In  response  to  the  aforementioned                                                               
notion, Representative Croft said that he didn't know.                                                                          
                                                                                                                                
Number 1372                                                                                                                     
                                                                                                                                
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority   (ANGDA),  began   by  noting   that  the                                                               
committee packet should include written  testimony from him.  Mr.                                                               
Heinze  said that  he would  like to  focus on  the legislature's                                                               
role as the  policy maker with regard to resources.   He reminded                                                               
the committee  that ANGDA was  created by initiative and  given a                                                               
mission to  play a role  in bringing  North Slope gas  to market,                                                               
particularly in LNG projects out  of Prince Williams Sound with a                                                               
spur  line into  the  Cook  Inlet area.    The initiative  merely                                                               
mandated  that ANGDA  study the  aforementioned project  and make                                                               
some determination  with regard to  its feasibility.   Mr. Heinze                                                               
said  that  the initiative  [forming  ANGDA]  was formulated  and                                                               
passed fairly  overwhelming because Alaskans were  frustrated and                                                               
wanted something  to happen.   Furthermore,  there was  a feeling                                                               
that  the benefits  to  Alaska and  Alaskans  wasn't being  fully                                                               
understood.   The aforementioned led  to the formation  of ANGDA,                                                               
the board of which has focused on benefits to Alaska.                                                                           
                                                                                                                                
MR. HEINZE informed the committee  that ANGDA has been working in                                                               
three major areas,  which are consistent with the  mandate of the                                                               
initiative.   First, ANGDA has  to understand the  basic business                                                               
structure.   Although ANGDA was  created as a  public corporation                                                               
of the state, no one specified how  it would be put together.  He                                                               
characterized  [ANGDA]  as  an   expression  of  the  owner-state                                                               
notion.   Second,  ANGDA has  spent much  energy identifying  and                                                               
understanding all  the benefits that  such a project  could bring                                                               
to Alaska and Alaskans.  In  the past many have made decisions on                                                               
resource development  based on the  rate of return or  the number                                                               
of  dollars that  flow to  the  state treasury.   However,  [this                                                               
legislation] proposes  a much  broader look  with regard  to what                                                               
this holds for Alaska, which is  what ANGDA hopes will occur as a                                                               
matter  of  policy.    Third,  numbers,  schedules,  and  project                                                               
designs and  cost have  been worked on.   Mr.  Heinze highlighted                                                               
that "market"  has been a  key question.  However,  he recognized                                                               
that there are some competitive issues.                                                                                         
                                                                                                                                
Number 1714                                                                                                                     
                                                                                                                                
MR. HEINZE  said that the  requested funding does satisfy  the 11                                                               
elements listed in  the ballot measure.  Although  ANGDA hopes to                                                               
receive the stranded gas applications,  absent those ANGDA has to                                                               
proceed  on  its  own.     Since  those  applications  have  been                                                               
received, ANGDA's  board met  and decided that  for the  next few                                                               
months it  would be willing  to change  its priority in  order to                                                               
make its work fit with the  state's total effort to work with the                                                               
stranded gas applications.   Mr. Heinze noted  that the committee                                                               
packet should include  copies of the letters he wrote  to the two                                                               
different  applicant groups.   He  characterized  the letters  as                                                               
open-ended  with  regard  to  how the  authority  might  work  to                                                               
enhance the  project.   He specified that  ANGDA believes  it can                                                               
help with the work and possibly  lower the cost of service, which                                                               
is ANGDA's business  model.  He highlighted that ANGDA  is in the                                                               
business of  lowering the  cost of service  rather than  making a                                                               
profit.  Furthermore, ANGDA believes  it has ideas with regard to                                                               
making the sponsors' projects even better.                                                                                      
                                                                                                                                
MR. HEINZE  returned to  the policy matter  and pointed  out that                                                               
the committee will  ultimately be the focal point  with regard to                                                               
decisions that have to be made.   He mentioned that there need to                                                               
be some  comparison points.   Mr. Heinze announced that  ANGDA is                                                               
happy to work with the  administration with regard to getting the                                                               
North Slope gas to market.                                                                                                      
                                                                                                                                
Number 1844                                                                                                                     
                                                                                                                                
MR. HEINZE  said that  he was comfortable  that the  $2.5 million                                                               
will be  wisely spent to  provide information the  committee will                                                               
need  when  making  decisions  on  proceeding.    From  a  policy                                                               
standpoint,  ANGDA  doesn't  visualize  the  state  investing  or                                                               
determining  in  a  financial sense  whether  this  project  goes                                                               
forward.    The private  markets,  he  opined, will  provide  the                                                               
investment  funds  for  this  project.    The  aforementioned  is                                                               
important  because  in the  past  the  state has  had  difficulty                                                               
making  good  economic  decisions.   Mr.  Heinze  specified  that                                                               
[ANGDA]  is  going to  look  to  the  market place  to  determine                                                               
whether the project is appropriate  in an economic sense.  Still,                                                               
the state shouldn't only accept  an economic view by the resource                                                               
leasers.   If ANGDA  can define a  project or a  way in  which to                                                               
make  the project  work, the  [legislature]  needs to  understand                                                               
that in  order to determine  how the  state wants to  proceed and                                                               
the role  it may want  to play.   The aforementioned  decision at                                                               
the state level  will involve the legislature,  the governor, the                                                               
ANGDA board,  and the  people of  Alaska.   Mr. Heinze  said that                                                               
ANGDA feels that  it's important to provide a good  piece of work                                                               
from which everyone can make judgment.                                                                                          
                                                                                                                                
Number 2002                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA turned  attention  to  the February  13,                                                               
2004,  memorandum  from  Mr.  Heinze   to  the  producers,  which                                                               
specifies  that the  "... Beaufort  Sea  alternative route  might                                                               
become  possible if  North Slope  gas was  available to  Alaskans                                                               
...."  She inquired as to how that might be possible.                                                                           
                                                                                                                                
MR.  HEINZE explained  that  he  was trying  to  indicate to  the                                                               
producers that  in one  case [ANGDA's]  project shares  the first                                                               
530  miles  with  the  [producer's]  project  down  the  highway.                                                               
Therefore,  there are  some interactions  that could  be mutually                                                               
beneficial.  Mr. Heinze specified  that he was trying to indicate                                                               
that although  one of  the producers has  shown a  preference for                                                               
the "over the top" route,  he understood the application from the                                                               
producers to  be route  neutral.  Mr.  Heinze related  his belief                                                               
that  Alaska  has so  violently  opposed  that route  because  it                                                               
doesn't "do anything"  for Alaska.  Therefore,  he suggested that                                                               
ANGDA's project or  some scale of it might make  Alaska feel good                                                               
about its North Slope gas reserve  and how Alaskans are tied into                                                               
it.  Once the aforementioned  is accomplished, then it would seem                                                               
there  would  be  the  ability  to  review  alternatives  with  a                                                               
different eye.                                                                                                                  
                                                                                                                                
Number 2119                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEPOVICH asked  if the lower cost  of service Mr.                                                               
Heinze spoke of would be passed on to the consumer.                                                                             
                                                                                                                                
MR.  HEINZE  explained  that  when  ANGDA  reviews  the  billions                                                               
invested  and the  high  rate of  return on  those  by a  taxable                                                               
organization,  the  tariffs  required   are  fairly  high.    For                                                               
example,  when  the  state  builds  a road  there  is  no  profit                                                               
objective  and  very  low  interest bonding  is  utilized.    The                                                               
calculations done  by ANGDA indicate that  the difference between                                                               
the  tariff levels  is very  large.   In  the case  of the  broad                                                               
economics  of   these  projects,  [the  tariff   levels]  make  a                                                               
tremendous  difference  with  regard  to  whether  a  project  is                                                               
economic or not.   He informed the committee that  ANGDA has made                                                               
no determination  with regard to  what exactly will  be attempted                                                               
in that  area.   Furthermore, tax,  bonding, and  funding experts                                                               
have been hired to review  what combination would result in lower                                                               
cost of service.   In this case, discounting the  cost of service                                                               
by  25-30 percent  would be  extraordinarily  significant.   Such                                                               
discounts are possible based on the business structure.                                                                         
                                                                                                                                
Number 2225                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE  recalled  testimony Mr.  Heinze  gave  at                                                               
another committee meeting.   She recalled that he  said that when                                                               
he was  president of ARCO  he would've  spent $50 million  to get                                                               
answers.   Therefore, she questioned  whether the $2  million for                                                               
this will produce the same quality of answers.                                                                                  
                                                                                                                                
MR. HEINZE acknowledged  that $2-$2.5 million is a  lot of money.                                                               
However,  in terms  of  the first  steps  toward a  multi-billion                                                               
dollar project,  [those] in the  private sector would  be willing                                                               
to pay far more than $2.5 million  in order to ensure that a good                                                               
first decision  is made.   He reminded  the committee  that after                                                               
spending $2.5  million [the state]  may choose to walk  away, and                                                               
therefore it's worth a lot to  make sure the decision is correct.                                                               
Mr. Heinze pointed  out that a better decision  is being obtained                                                               
with the  $2.5 million  because there is  about three  decades of                                                               
work  from  various groups  that  have  reviewed these  projects.                                                               
Furthermore,  much information  and input  is being  donated from                                                               
various entities.  Mr. Heinze  reiterated that $2-$2.5 million is                                                               
a lot  of money, although it's  a small amount compared  with the                                                               
magnitude of the decision.                                                                                                      
                                                                                                                                
REPRESENTATIVE STEPOVICH  asked if [ANGDA's  supplemental funding                                                               
request] will  be wasted money  if these two other  projects come                                                               
on line.                                                                                                                        
                                                                                                                                
Number 2486                                                                                                                     
                                                                                                                                
STEVEN   B.   PORTER,   Deputy  Commissioner,   Office   of   the                                                               
Commissioner, Department  of Revenue, posed a  situation in which                                                               
the state  is the owner  of the land on  the North Slope  and the                                                               
state leases  the land to  the oil  companies.  After  the lessee                                                               
produces a  product, it's [the  lessee's] job to get  the product                                                               
to market.  Getting the product  to market can be accomplished in                                                               
a  number  of  different  ways  such as  via  trucks  within  the                                                               
lessee's  own system.   Another  alternative is  to hire  a major                                                               
trucking firm to move the  product to market.  The aforementioned                                                               
is   the   situation   in   which   MidAmerican   finds   itself.                                                               
Furthermore, a  company can hire  a lot of independents  [to move                                                               
the  product to  market].    Mr. Porter  noted  that ANGDA  could                                                               
actually  build  the pipeline  for  the  majors.   However,  what                                                               
usually  happens  is  that  the  major  trucking  companies  will                                                               
[compete] for the major trunk lines  and won't service any of the                                                               
communities in  between while the  independents will  service all                                                               
of  the  communities in  between.    Mr.  Porter said  that  [the                                                               
department]  sees the  need for  ANGDA to  do exactly  that.   He                                                               
agreed with  Mr. Heinze  that ANGDA  needs to  be focused  on in-                                                               
state gas benefits  because there is not a  substantial amount of                                                               
interest  in  the spur  lines  from  any  of the  major  players.                                                               
Therefore, the  hope is that  ANGDA would identify  the [in-state                                                               
gas]  benefits,  bring them  to  the  table, and  compliment  the                                                               
entire  process.   Mr.  Porter  said he  views  ANGDA  as a  very                                                               
effective tool and participant in the overall process.                                                                          
                                                                                                                                
Number 2603                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO inquired  as to  what would  happen if  the                                                               
entire  appropriation is  spent  but  only half  of  the goal  is                                                               
reached.                                                                                                                        
                                                                                                                                
MR. PORTER noted that [the  department] is recommending that [the                                                               
ANGDA supplemental  funding] be  increased from $2.15  million to                                                               
$3  million.     Mr.  Porter  pointed  out  that   the  state  is                                                               
negotiating  with  two  separate  Stranded  Gas  Development  Act                                                               
applications and ANGDA is  reviewing feasibility, which overlaps.                                                               
Many of  the issues the [state]  needs to address, ANGDA  does as                                                               
well.   Therefore, the  desire is  to make  efficient use  of the                                                               
money so that the question is answered once, not twice.                                                                         
                                                                                                                                
MR. PORTER  turned to  Representative Gatto's  question.   If the                                                               
[department]  has underestimated  [the supplemental  funding] but                                                               
has truly  spent the money  wisely, then [the  department] should                                                               
return [to  the legislature  to request  additional funds].   Mr.                                                               
Porter pointed out  that the oil and gas industry  spent close to                                                               
$100  million evaluating  the pipeline  going through  the Alaska                                                               
Highway and  over $10  million evaluating  the LNG  line process.                                                               
Although this  request for $2.15  million scratches  the surface,                                                               
it  provides  [the  state] with  the  opportunity  to  understand                                                               
feasibility.  In  order to do the aforementioned,  money needs to                                                               
be available to  answer the questions in the  negotiations on the                                                               
stranded  gas  side.   However,  those  questions aren't  readily                                                               
apparent until the negotiations take  place.  Mr. Porter recalled                                                               
Governor  Murkowski's  speech  that specified  that  the  highest                                                               
priority is  to protect  the interest of  the state.   Therefore,                                                               
whatever   funding  that   requires  should   be  funded.     The                                                               
[department]  believes  that  it  will  require  $3  million  [to                                                               
protect the interest of the state].                                                                                             
                                                                                                                                
Number 2766                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked if  [the department]  has, through                                                               
reciprocal confidentiality  agreements, been  able to  review any                                                               
of the studies that the producers have done.                                                                                    
                                                                                                                                
MR.  PORTER pointed  out that  the Stranded  Gas Development  Act                                                               
contemplated that  and thus the  Act states that the  [state] has                                                               
the right  to request  such information.   The  hope is  that the                                                               
producers  will  cooperate.     The  more  cooperation  from  the                                                               
producers,  the  less  cost  for the  state  to  participate,  he                                                               
highlighted.   In  further response  to Representative  Kerttula,                                                               
Mr.  Porter said  he  would  keep the  committee  abreast of  the                                                               
process.                                                                                                                        
                                                                                                                                
Number 2812                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE drew  attention to [Volume 9,  Number 7] of                                                               
the Petroleum News,  which quotes Mr. Porter as  follows:  "We're                                                             
not talking about ANGDA doing its  own thing anymore.  We see the                                                               
authority as  part of a  team."  The  article goes on  to specify                                                               
that the  team, which has  already started negotiations  with the                                                               
two  applicants, would  include  the Department  of Revenue,  the                                                               
Department of Law, and the Department of Natural Resources.                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE asked  if there is a  [contingency plan] if                                                               
the  two applicants  don't move  forward in  say six  months from                                                               
now.                                                                                                                            
                                                                                                                                
MR. PORTER  explained that ANGDA  has a  statutory responsibility                                                               
to evaluate  and provide  a development  plan to  the legislature                                                               
with regard to the feasibility of  taking a pipe from Prudhoe Bay                                                               
to Valdez.   The aforementioned  obligation didn't  change rather                                                               
[the department]  has recommended that  ANGDA take the  pieces of                                                               
ANGDA's responsibility  that can  compliment the  current process                                                               
and place  them at the forefront  of the evaluation.   Mr. Porter                                                               
specified  that [the  department] would  continue to  perform its                                                               
entire  obligation per  the statute  and  the [department]  would                                                               
continue  to support  ANGDA in  that.   He noted  that ultimately                                                               
ANGDA will provide that information to the legislature.                                                                         
                                                                                                                                
REPRESENTATIVE  HEINZE  inquired  as  to the  next  step  if  the                                                               
applicants decide not to move forward.                                                                                          
                                                                                                                                
MR.  PORTER  turned  to  ANGDA's  process  which  will  determine                                                               
whether  a  LNG  project  is   economically  feasible.    If  the                                                               
[applicants don't  move forward] after the  state has determined,                                                               
through its  research, that there  [the project  is] economically                                                               
[feasible],   then  the   [department]   would   return  to   the                                                               
legislature and  ask whether the legislature/state  wants to fund                                                               
a project.   However, the aforementioned is  several options down                                                               
the road.                                                                                                                       
                                                                                                                                
MR.  PORTER   emphasized  that  the   funding  is   critical  and                                                               
important,  as  is  the  timeliness  of  it.    He  informed  the                                                               
committee that there are contracts  with ANGDA that cannot be let                                                               
because  there aren't  the funds  to move  the projects  forward.                                                               
Therefore,  the sooner  the money  is available,  the faster  the                                                               
contracts can go out.                                                                                                           
                                                                                                                                
TAPE 04-4, SIDE B                                                                                                             
                                                                                                                                
REPRESENTATIVE GUTTENBERG  inquired as  to the difference  in the                                                               
product that  will be  received from  a $3  million appropriation                                                               
versus a $2.15 million appropriation.                                                                                           
                                                                                                                                
MR. PORTER  specified that  the additional  funds are  funds that                                                               
may  be  necessary  for  negotiations   under  the  Stranded  Gas                                                               
Development  Act.   Under  those  negotiations,  there may  be  a                                                               
number  of issues  that  arise  for which  the  state would  need                                                               
expertise   in   order   to  participate   effectively   in   the                                                               
negotiations.                                                                                                                   
                                                                                                                                
Number 2914                                                                                                                     
                                                                                                                                
ROBERT VALDATTA, Member, City Council,  City of Seward, suggested                                                               
that the Prudhoe  gas line could be built to  Glennallen and from                                                               
there it could be  go to Wasilla.  He noted that  there is a line                                                               
on  the back  of  Beluga out  of  Wasilla and  two  lines in  the                                                               
Seward-Anchorage  area.    In the  meantime,  the  infrastructure                                                               
would be  in and [the  state] could sell  the gas and  make money                                                               
from it while planning what to do next.                                                                                         
                                                                                                                                
CO-CHAIR MASEK  requested that Nels  Anderson, a  former Senator,                                                               
come forward.                                                                                                                   
                                                                                                                                
Number 2868                                                                                                                     
                                                                                                                                
NELS  ANDERSON  explained   that  he,  as  a   Yupik  Eskimo,  is                                                               
interested  in a  gas pipeline  from  the North  Slope to  Valdez                                                               
because the  North Slope gas  is a known resource.   Furthermore,                                                               
Article 8, Section 1 of  the Alaska State Constitution specifies:                                                               
"It is  the policy of  the State  to encourage the  settlement of                                                               
its  land and  the development  of its  resources by  making them                                                               
available for  maximum use consistent with  the public interest."                                                               
He  also pointed  out that  Article 8,  Section 2  of the  Alaska                                                               
State  Constitution specifies:   "The  legislature shall  provide                                                               
for  the  utilization,  development,   and  conservation  of  all                                                               
natural  resources belonging  to  the State,  including land  and                                                               
waters, for  the maximum  benefit of its  people."   He explained                                                               
that he raised  the constitutional aspect of this  because it was                                                               
the  impetus  behind proposition  2,  which  over 140,000  people                                                               
signed and approved.   Mr. Anderson said he knew,  as did others,                                                               
that this  would be  a phased  process in that  there would  be a                                                               
political  process,  a  funding  process,  and  then  a  planning                                                               
process  that  would  review  benefits and  risk  analysis.    He                                                               
mentioned that he  was a sponsor of proposition  2, and therefore                                                               
he  said  he is  pleased  that  the  committee is  reviewing  the                                                               
financing that is  necessary to move the state where  it needs to                                                               
be in order to decide whether this project makes fiscal sense.                                                                  
                                                                                                                                
MR. ANDERSON  informed the  committee that  those in  Bristol Bay                                                               
see [the gas line] as a  potential source of low cost energy, new                                                               
jobs, and new revenue to the  state treasury that could help fund                                                               
local schools,  the university in  the area, and life  and health                                                               
safety  programs.   Most importantly,  Mr. Anderson  related that                                                               
those in  Bristol Bay view  this as the  start of a  viable state                                                               
gas industry that  could be beneficial to all  Alaskans well into                                                               
the  future.   In closing,  Mr. Anderson  urged the  committee to                                                               
approve SSHB 296.                                                                                                               
                                                                                                                                
Number 2705                                                                                                                     
                                                                                                                                
DOROTHY ANDERSON  informed the  committee that  she is  a 30-year                                                               
resident  of Dillingham  who participated  in and  voted for  the                                                               
All-Alaska  gas   line  initiative   project.    She   urged  the                                                               
legislature to follow  through on the process and  to support the                                                               
request of the funds necessary  to perform the feasibility study.                                                               
Ms. Anderson related  that she believes this is a  way for all of                                                               
Alaska  to benefit  from the  state's  resources.   She said  she                                                               
hoped that [this legislation] doesn't  get "watered down" because                                                               
the possibilities need to be known.                                                                                             
                                                                                                                                
Number 2643                                                                                                                     
                                                                                                                                
PAUL  FUHS,  Volunteer  Lobbyist  for Backbone  2,  informed  the                                                               
committee that  Backbone 2 is  in support of  SSHB 296.   He said                                                               
that one of the most critical  elements that will be derived from                                                               
this  legislation is  information,  which is  critical in  making                                                               
decisions.    Mr. Fuhs  pointed  out  that the  committee  packet                                                               
should include a document from  him entitled, "Alaska's Strategic                                                               
Interest  in North  Slope Gas  Development", which  he urged  the                                                               
committee to  read.   Mr. Fuhs related  that Backbone  2 believes                                                               
that  the gas  line is  Alaska's  fiscal plan,  and therefore  it                                                               
should  be  built as  soon  as  possible.    With regard  to  the                                                               
Stranded  Gas   Development  Act   applications,  he   urged  the                                                               
committee to review  those as he viewed "this"  as an opportunity                                                               
for  Alaska  to  have  some  negotiating  leverage.    "If  these                                                               
companies want  tax breaks from Alaska  and they want us  to give                                                               
back  the  benefits that  we  would  normally receive,  we  think                                                               
Alaska ought  to at least be  able to negotiate a  gas supply for                                                               
our project,  a project that  Alaskans voted  for," he said.   He                                                               
noted that  he was encouraged  by MidAmerican's application.   In                                                               
conclusion, Mr.  Fuhs encouraged the  committee to move  SSHB 296                                                               
from committee.                                                                                                                 
                                                                                                                                
Number 2511                                                                                                                     
                                                                                                                                
CO-CHAIR MASEK, upon  determining no one else  wished to testify,                                                               
closed public testimony.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  commented that  SSHB  296  is a  good                                                               
bill.    The  product  from this  legislation  will  enhance  the                                                               
feasibility of  moving the project  along as well as  the ability                                                               
of the state to successfully  negotiate with whomever is building                                                               
a line.   Representative Guttenberg indicated  interest in making                                                               
an amendment [to increase the  supplemental funding request to $3                                                               
million].                                                                                                                       
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
CO-CHAIR DAHLSTROM remarked  that this is a matter  of policy and                                                               
the House Finance  Committee will address the  many fiscal issues                                                               
involved.                                                                                                                       
                                                                                                                                
Number 2435                                                                                                                     
                                                                                                                                
CO-CHAIR  DAHLSTROM moved  to report  SSHB 296  out of  committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  There being no objection, it was so ordered.                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:35 p.m.                                                                 
                                                                                                                                
                                                                                                                                

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