Legislature(2005 - 2006)CAPITOL 124

06/03/2006 08:30 AM RESOURCES


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08:33:43 AM Start
08:34:41 AM HB2004
05:35:06 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 2:30 pm --
+= HB2004 STRANDED GAS DEVELOPMENT ACT AMENDMENTS TELECONFERENCED
Moved CSHB2004(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                          June 3, 2006                                                                                          
                           8:33 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Jay Ramras, Co-Chair                                                                                             
Representative Ralph Samuels, Co-Chair                                                                                          
Representative Paul Seaton, Vice Chair                                                                                          
Representative Jim Elkins                                                                                                       
Representative Carl Gatto                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Kurt Olson                                                                                                       
Representative Harry Crawford                                                                                                   
Representative Mary Kapsner                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Mark Neuman                                                                                                      
Representative Beth Kerttula                                                                                                    
Representative David Guttenberg                                                                                                 
Representative John Coghill                                                                                                     
Representative Peggy Wilson                                                                                                     
Representative Pete Kott                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 2004                                                                                                             
"An  Act relating  to the  Alaska Stranded  Gas Development  Act,                                                               
including  clarifications or  provision  of additional  authority                                                               
for  the  development  of stranded  gas  fiscal  contract  terms;                                                               
making a conforming amendment to  the Revised Uniform Arbitration                                                               
Act; relating to municipal impact  money received under the terms                                                               
of  a  stranded  gas  fiscal   contract;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - MOVED CSHB 2004(RES) OUT OF COMMITTEE                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 2004                                                                                                                 
SHORT TITLE: STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                            
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
05/31/06       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/31/06       (H)       RES, JUD                                                                                               
06/01/06       (H)       RES AT 9:00 AM CAPITOL 124                                                                             
06/01/06       (H)       Heard & Held                                                                                           
06/01/06       (H)       MINUTE(RES)                                                                                            
06/02/06       (H)       RES AT 9:00 AM CAPITOL 124                                                                             
06/02/06       (H)       Heard & Held                                                                                           
06/02/06       (H)       MINUTE(RES)                                                                                            
06/03/06       (H)       RES AT 8:30 AM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN DICKINSON, CPA                                                                                                              
(No address provided)                                                                                                           
POSITION STATEMENT:  During discussion of HB 2004, as a                                                                         
consultant for the Department of Revenue (DOR), responded to                                                                    
questions on behalf of the administration.                                                                                      
                                                                                                                                
DAVID VAN TUYL, Commercial Manager                                                                                              
Alaska Gas Group                                                                                                                
BP Exploration (Alaska) Inc.                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 2004, and                                                                       
responded to a question.                                                                                                        
                                                                                                                                
KEN GRIFFIN, Acting Deputy Commissioner                                                                                         
Anchorage Office                                                                                                                
Office of the Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Responded to questions during discussion of                                                                
HB 2004.                                                                                                                        
                                                                                                                                
JOSEPH K. DONOHUE, Attorney at Law                                                                                              
Preston Gates & Ellis                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  On behalf of the administration, responded                                                                 
to questions during discussion of HB 2004.                                                                                      
                                                                                                                                
KEVIN JARDELL, Legislative Liaison                                                                                              
Governor's Legislative Office                                                                                                   
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  On behalf of the administration, responded                                                                 
to questions during discussion of HB 2004.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  RALPH  SAMUELS  called  the  House  Resources  Standing                                                             
Committee  meeting  to  order at  8:33:43  AM.    Representatives                                                             
Samuels, Elkins,  Gatto, LeDoux, and  Seaton were present  at the                                                               
call  to order.    Representatives Ramras,  Olson, Crawford,  and                                                               
Kapsner arrived as the meeting  was in progress.  Representatives                                                               
Coghill,  Neuman,  Wilson,  Guttenberg,  and Kott  were  also  in                                                               
attendance.                                                                                                                     
                                                                                                                                
HB 2004 - STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                             
                                                                                                                                
[Contains brief mention of HB 2003.]                                                                                            
                                                                                                                                
CO-CHAIR  SAMUELS  announced that  the  first  order of  business                                                               
would be  HOUSE BILL  NO. 2004,  "An Act  relating to  the Alaska                                                               
Stranded  Gas   Development  Act,  including   clarifications  or                                                               
provision  of   additional  authority  for  the   development  of                                                               
stranded  gas   fiscal  contract   terms;  making   a  conforming                                                               
amendment  to the  Revised Uniform  Arbitration Act;  relating to                                                               
municipal impact  money received  under the  terms of  a stranded                                                               
gas fiscal contract; and providing for an effective date."                                                                      
                                                                                                                                
8:34:41 AM                                                                                                                    
                                                                                                                                
DAN DICKINSON,  CPA, in  response to  a question,  after relaying                                                               
that  he is  the  former  director of  the  Tax  Division of  the                                                               
Department  of   Revenue  (DOR)   but  is  currently   acting  as                                                               
consultant to the  DOR, said that if a  limited liability company                                                               
(LLC) -  such as the  proposed Pipeline Project  Mainline Limited                                                               
Liability Company  Entity ("Mainline LLC")  - asks to  be treated                                                               
as a "pass  through entity," then the various  elements of income                                                               
will be  passed onto the  owners; in  terms of the  Mainline LLC,                                                               
the  three  corporations  involved  in the  Alaska  Stranded  Gas                                                               
Fiscal Contract ("ASGF Contract") as  owners in the project would                                                               
be  BP Exploration  (Alaska) Inc.,  ConocoPhillips Alaska,  Inc.,                                                               
and  ExxonMobil   Alaska  Production,   Inc.,  and   these  three                                                               
corporations would partner with the  State of Alaska - the fourth                                                               
member/owner of  the Mainline  LLC.   Eventually all  income will                                                               
end  up at  a  taxable  entity, though  the  entity  may only  be                                                               
subject to federal  taxes.  With regard to the  Mainline LLC, the                                                               
three  corporations  would  be  taxable -  forming  part  of  the                                                               
"unitary group"  that would be  taxed -  and the State  of Alaska                                                               
would not be subject to state taxes.                                                                                            
                                                                                                                                
MR. DICKINSON added that if any  of the individual members of the                                                               
Mainline LLC changed  their structure or "moved  into a different                                                               
structure,"  as  long  as  the new  structure  was  taxable,  the                                                               
elements of  income would flow  through and be reportable  and be                                                               
taxed.    In  response  to  other questions,  he  said  that  the                                                               
individual corporations  will have  a nexus  with the  state, and                                                               
the  state will  "pull  in  anyone engaged  in  the  oil and  gas                                                               
business,"  and   will  look  at  the   "unitary  business,"  the                                                               
worldwide  income of  that unitary  business,  and any  [related]                                                               
entity;  furthermore, in  determining  how much  income flows  to                                                               
Alaska, the assets that the  [Mainline LLC] owns [in Alaska] will                                                               
form part of the numerator.                                                                                                     
                                                                                                                                
8:39:25 AM                                                                                                                    
                                                                                                                                
MR. DICKINSON,  in response to further  questions, explained that                                                               
if an  individual wanted to own  the pipeline - though  such is a                                                               
fairly  farfetched notion  - he/she  would not  be taxed;  again,                                                               
though, "pass through" entities would  be taxed.  However, if the                                                               
state  wanted to  be  able  to tax  an  individual  who owns  the                                                               
pipeline  without first  passing an  income tax,  the legislature                                                               
could institute a  tax on "corporate" persons.   He again offered                                                               
his  belief  that  it  is   unlikely  that  an  individual  would                                                               
undertake to own the pipeline.                                                                                                  
                                                                                                                                
REPRESENTATIVE LeDOUX  asked whether the ASGF  Contract prohibits                                                               
passage of a tax on corporate persons.                                                                                          
                                                                                                                                
MR. DICKINSON offered his understanding  that the legislature can                                                               
pass whatever  taxes it  wishes; that  the ASGF  Contract exempts                                                               
participants  from  certain  of  those taxes;  and  that  if  "an                                                               
additional person"  acquires certain assets controlled  by one of                                                               
the  corporations, under  Article 31.1(d)  of the  ASGF Contract,                                                               
he/she would still be subject to  corporate income tax.  He noted                                                               
that Article 31.1(d) reads:                                                                                                     
                                                                                                                                
     (d)  Conditions Regarding  Additional Person.   For  an                                                                  
     Additional   Person,   the  exemption   and   covenants                                                                    
     provided in  the Contract are  limited to  Taxes, other                                                                    
     than  SCIT, on  that portion  of the  Project that  has                                                                    
     been assumed by the Additional Person.                                                                                     
                                                                                                                                
MR.  DICKINSON  explained  that  "SCIT" is  defined  as  any  tax                                                               
imposed  on  or  measured  by  net income.    In  response  to  a                                                               
question, he  said that in  determining taxes, the state  will be                                                               
looking at  "what's the unitary  group, and who's engaged  in oil                                                               
and gas  and pipeline  business in the  state of  Alaska"; that's                                                               
who will  be dealt with, either  under the terms of  the contract                                                               
or  under tax  law,  and  the form  by  which "those  affiliates"                                                               
relate to one another - in  terms of paying dividends - is fairly                                                               
immaterial.                                                                                                                     
                                                                                                                                
MR. DICKINSON, in response to  another question, indicated that a                                                               
"unitary business" is the larger entity  and not just an LLC, and                                                               
the  Alaska taxes  would be  determined by  how much  property is                                                               
owned  in the  state, and  the sales  in Alaska  - typically  the                                                               
tariffs charged.                                                                                                                
                                                                                                                                
CO-CHAIR   RAMRAS  offered   his  understanding   that  corporate                                                               
entities,  regardless of  whether they  are  an LLC,  must pay  a                                                               
corporate income tax.                                                                                                           
                                                                                                                                
MR. DICKINSON  concurred, and, in  response to  comments, offered                                                               
his belief  that the  ASGF Contract is  structured such  that tax                                                               
evasion by  the corporations is  unlikely to occur.   In response                                                               
to a  question, he  indicated that  he is  not familiar  with how                                                               
"Lloyd's" operates.                                                                                                             
                                                                                                                                
8:56:00 AM                                                                                                                    
                                                                                                                                
DAVID  VAN  TUYL,  Commercial  Manager,   Alaska  Gas  Group,  BP                                                               
Exploration (Alaska) Inc., said:                                                                                                
                                                                                                                                
     We support  the intent  behind the bill  which provides                                                                    
     amendments  to the  [Alaska]  Stranded Gas  Development                                                                    
     Act, and believe  this bill will help  progress the gas                                                                    
     pipeline  fiscal contract.   The  administration did  a                                                                    
     good   job   in   structuring  these   amendments   and                                                                    
     explaining them  to this committee.   However, there is                                                                    
     one  point  that we  see  a  bit differently  than  the                                                                    
     administration and  I'd like to  take just a  moment to                                                                    
     clarify for  the record.  I  believe the administration                                                                    
     stated that  the amendment to [AS  43.82.220(a)(2)] ...                                                                    
     that allows for the inclusion  of terms in the contract                                                                    
     related  to the  state  reimbursing  the producers  for                                                                    
     certain upstream  costs was  required because  this was                                                                    
     not a  right the producers currently  hold under either                                                                    
     existing lease or unit agreements.                                                                                         
                                                                                                                                
     We don't agree.   In old form leases -  known as "DL-1"                                                                    
     leases -  the state  is obligated  to pay  for upstream                                                                    
     costs associated with any of  its gas it takes in-kind.                                                                    
     So we feel  that this is a lease  right associated with                                                                    
     ... these  DL-1 leases,  and the  vast majority  of the                                                                    
     known North  Slope gas resource, around  90 percent, is                                                                    
     found on  these DL-1 leases.   The fiscal  contract and                                                                    
     the  amendments   to  HB  2004  simply   [extend]  that                                                                    
     existing lease right to all gas from all leases.                                                                           
                                                                                                                                
     So to conclude  my brief comments, I  want to emphasize                                                                    
     that  [BP  Exploration  (Alaska)  Inc.]  stands  ready,                                                                    
     willing, and able to advance  the gas pipeline project,                                                                    
     along with our  partners, [ConocoPhillips Alaska, Inc.,                                                                    
     ExxonMobil Alaska  Production, Inc.,] and the  State of                                                                    
     Alaska.   The  [ASGF Contract],  coupled with  HB 2004,                                                                    
     makes that objective possible; BP  also stands ready to                                                                    
     work with the legislature as  you complete your work on                                                                    
     this bill.                                                                                                                 
                                                                                                                                
     We support passage  of HB 2004, and  then encourage the                                                                    
     legislature to  approve the  [ASGF Contract]  to enable                                                                    
     all Alaskans to benefit from  one of the largest energy                                                                    
     projects on the planet.   Thank you for the opportunity                                                                    
     to testify,  and I'd  be happy to  try [to]  ... answer                                                                    
     any questions that you might have.                                                                                         
                                                                                                                                
MR. VAN TUYL,  in response to a question, said  the ASGF Contract                                                               
provides for  delivery of gas  at the delivery points,  at either                                                               
the  lease boundary  or the  first midstream  element, though  he                                                               
does  not  know, specifically,  what  the  lease terms  call  for                                                               
relative  to  merchantable condition,  but  would  be willing  to                                                               
research that issue  further.  What he was  referring to earlier,                                                               
he  remarked, were  the specific  provisions of  the DL-1  leases                                                               
that  call for  reimbursement of  upstream costs  associated with                                                               
processing gas -  separating oil, water, and gas -  to deliver it                                                               
from a lease.                                                                                                                   
                                                                                                                                
9:01:19 AM                                                                                                                    
                                                                                                                                
KEN  GRIFFIN,  Acting   Deputy  Commissioner,  Anchorage  Office,                                                               
Office  of  the  Commissioner, Department  of  Natural  Resources                                                               
(DNR),  in  response  to  a question,  referred  to  proposed  AS                                                               
43.82.020(2) of  HB 2004, and  said that the terms  affecting the                                                               
lease agreements, unit agreements,  and other agreements referred                                                               
to therein  are varied.   The adjustments referred to  can affect                                                               
upstream    state    royalty;     gas    responsibilities;    the                                                               
responsibilities for  the costs of conditioning  and the disposal                                                               
of impurities;  royalty in-kind (RIK) and  royalty in-value (RIV)                                                               
switching;  the  point  at  which   royalty  gas  is  taken;  the                                                               
calculation  of sliding-scale  royalties;  and  approval of  unit                                                               
plans of  development, particularly  at the Point  Thompson unit.                                                               
Much  of the  time, a  group of  leases are  incorporated into  a                                                               
unit, and the process for calculating  the unit royalty is in the                                                               
unit agreement; thus,  if [the unit royalty] is  affected by this                                                               
provision, so too will the unit agreement be affected.                                                                          
                                                                                                                                
9:04:46 AM                                                                                                                    
                                                                                                                                
MR. GRIFFIN  indicated that the  language, "other  agreements" is                                                               
intended  to ensure  that agreements  are aligned  and consistent                                                               
with  the ASGF  Contract.   The authority  being granted  by this                                                               
provision is  the authority to  negotiate [what has  already been                                                               
negotiated]  in  the ASGF  Contract,  and  the result  of  "these                                                               
changes"   will   come   before   the   Legislature   for   final                                                               
ratification.  He assured the committee  that this is not an open                                                               
carte blanche  for continual renegotiation  or revision  once the                                                               
ASGF  Contract has  been  approved by  the  legislature and  then                                                               
executed.   In response  to a question,  he indicated  that after                                                               
the ASGF Contract is executed,  any further proposed changes must                                                               
be brought  before the legislature  and approved;  under proposed                                                               
AS  43.82.020,  the legislature  would  simply  be providing  the                                                               
authority  necessary to  bring the  existing draft  ASGF Contract                                                               
forward for legislative consideration.                                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  pondered whether the legislature  ought to                                                               
seek confirmation of that with Department of Law.                                                                               
                                                                                                                                
MR. GRIFFIN acknowledged that point.   In response to a question,                                                               
he said he is focusing on  his understanding of the intent behind                                                               
the  aforementioned language.    There are  number of  provisions                                                               
throughout  the ASGF  Contract  that affect  lease  terms, and  -                                                               
particularly given  that the administration  does not  agree with                                                               
the  producers'   interpretation  of  some  of   the  DL-1  lease                                                               
provisions - HB 2004 is simply  "clearing the deck" to allow what                                                               
has [already] been negotiated in  the ASGF Contract to be brought                                                               
before  the  legislature.    Again, once  the  ASGF  Contract  is                                                               
executed, negotiations  are finished, and should  further changes                                                               
be  necessary,  they   would  have  to  be   brought  before  the                                                               
legislature  for additional  approval.   He  noted that  although                                                               
producers do have  the right to arbitrate under the  terms of the                                                               
ASGF Contract,  no changes  beyond the scope  of Article  41.2 of                                                               
the ASGF Contract is authorized.                                                                                                
                                                                                                                                
9:12:42 AM                                                                                                                    
                                                                                                                                
JOSEPH K.  DONOHUE, Attorney  at Law, Preston  Gates &  Ellis, on                                                               
behalf of the administration, in  response to a question, relayed                                                               
that proposed  AS 43.82.210(a)(8)  gives the  statutory authority                                                               
for the provisions  of the ASGF Contract to  provide an exemption                                                               
to  a reserves  tax should  such  be enacted  by initiative,  and                                                               
offered his  belief that  such an  exemption would  supersede any                                                               
other  law pertaining  to a  reserves  tax -  whether adopted  by                                                               
initiative or  statute -  though the  ASGF Contract  itself would                                                               
not necessarily circumvent  the people's or the  state's power to                                                               
adopt a reserves tax; rather, if  such a tax is adopted, the ASGF                                                               
Contract simply provides an exemption from it.                                                                                  
                                                                                                                                
9:18:06 AM                                                                                                                    
                                                                                                                                
KEVIN  JARDELL,   Legislative  Liaison,   Governor's  Legislative                                                               
Office, Office  of the  Governor, in response  to comments  and a                                                               
question, said:                                                                                                                 
                                                                                                                                
     "Diligence" is  a term that's  used quite often,  and I                                                                    
     think there's  a lot of  reason to believe  that that's                                                                    
     [a]   well-defined   term    and   one   that   through                                                                    
     negotiations ...  did provide quite strong  relief - if                                                                    
     the  companies  are  not pursuing  the  pipeline  -  to                                                                    
     terminate the  agreement.  One  of the things  that was                                                                    
     great about  the ...  legislature's action  of adopting                                                                    
     the  [Alaska  Stranded  Gas Development  Act]  was  the                                                                    
     process  that  it  put  in place.    And  that  process                                                                    
     provides  that  there  will be  legislative  input  and                                                                    
     public input on  [a] draft contract.   Certainly we are                                                                    
     getting quite a  bit of that, and some  of that relates                                                                    
     to the diligence standard and the work commitments.                                                                        
                                                                                                                                
     We've  received, from  your  consultants, documents  of                                                                    
     recent  release   that  [talk]  about  it;   we're  ...                                                                    
     currently  responding to  those, working  through them,                                                                    
     and  we're   not  dismissing   them  ...   [but  rather                                                                    
     reviewing them].   The  direction from  the legislature                                                                    
     is that  we take  that input, we  consider it,  and the                                                                    
     commissioner of  [the DOR]  - if  he believes  that ...                                                                    
     [change  is needed]  - can  enter into  negotiations to                                                                    
     make those needed  changes.  So that input  is needed -                                                                    
     we believe  that the contract currently  has sufficient                                                                    
     standards  -  but we  are  taking  the input  from  the                                                                    
     public  and  ...  the  legislature  very  seriously  in                                                                    
     considering  those  things  as  we  move  through  this                                                                    
     process.                                                                                                                   
                                                                                                                                
9:20:22 AM                                                                                                                    
                                                                                                                                
MR. JARDELL,  in response  to comments,  opined that  the current                                                               
process gives the public sufficient  opportunity to provide input                                                               
regarding  which provisions  of the  contract are  acceptable and                                                               
which aren't.  He spoke  of Governor Knowles's transmittal letter                                                               
- which  he said focused on  the need to waive  state, municipal,                                                               
and local  taxes -  and of  the "original  task force,"  and then                                                               
posited that the task force recognized  that in order to make the                                                               
project  economic  and  get  the  gas  to  market,  the  economic                                                               
structure needed  to be changed; during  the negotiation process,                                                               
it  became clear  to the  administration that  the aforementioned                                                               
reserves tax  was a significant  economic change that  would have                                                               
to  be addressed,  just as  the  issue of  state, municipal,  and                                                               
local  taxes had  to be  addressed  via the  Alaska Stranded  Gas                                                               
Development Act.                                                                                                                
                                                                                                                                
MR. JARDELL  indicated that  the issue of  taxes is  addressed in                                                               
the ASGF  Contract such that  taxes will  not be allowed  to harm                                                               
the project; if  the project is not  pursued diligently, however,                                                               
the  producers  will  have  to  begin  paying  [taxes],  and  the                                                               
administration  feels that  such a  provision is  necessary.   He                                                               
cautioned  against  trying  to  change  the  terms  of  the  ASGF                                                               
Contract prior  to hearing public testimony  regarding its terms.                                                               
In conclusion, he  proffered that the amendments  proposed via HB
2004 to  the Alaska Stranded  Gas Development Act are  within the                                                               
context and intent of that original Act.                                                                                        
                                                                                                                                
MR.  JARDELL,   in  response  to   a  comment,  noted   that  the                                                               
administration  is conducting  hearings throughout  the state  on                                                               
the ASGF Contract,  and reiterated that the  changes proposed via                                                               
HB  2004  ensure  that  the   ASGF  Contract  has  the  necessary                                                               
authority  to  move  forward  and   ultimately  come  before  the                                                               
legislature for approval.  The  administration views HB 2004 as a                                                               
cleanup  measure  necessary  to  continue the  viability  of  the                                                               
Alaska Stranded Gas  Development Act and the purpose  of the Act,                                                               
that being to negotiate a deal  that would get the gas to market,                                                               
present that deal  to the public and the  legislature, and obtain                                                               
legislative approval.   In response  to a question, he  said that                                                               
information about the ASGF Contract  is being given to, and input                                                               
received from,  the public  via electronic,  written, telephonic,                                                               
and in-person means.                                                                                                            
                                                                                                                                
MR. DONOHUE,  in response to  questions, reiterated  his comments                                                               
regarding   proposed  AS   43.82.210(a)(8),  and   Mr.  Griffin's                                                               
comments  regarding  the  authority   granted  by  the  bill  and                                                               
possible future changes that might be necessary.                                                                                
                                                                                                                                
MR.  JARDELL,  in  response  to a  question,  said  that  neither                                                               
existing law  nor HB  2004 thwart  the municipality's  or state's                                                               
ability to tax, though the ASGF  Contract, if approved, will.  In                                                               
response to another question, he said:                                                                                          
                                                                                                                                
     The direction given to us  by the legislature was to go                                                                    
     out and negotiate  a deal.  We have done  that.  And we                                                                    
     have brought  back a  deal that over  35 years  at $5.5                                                                    
     gas will  return $105 billion  to the state  of Alaska,                                                                    
     that  in  addition  will,   we  believe,  increase  the                                                                    
     production   of  our   [Trans-Alaska  Pipeline   System                                                                    
     (TAPS)]  ... -  whose production's  been declining  for                                                                    
     some years  now; it'll  extend the  life of  [the] TAPS                                                                    
     for  20  to  30  years,   and  ...  change  the  entire                                                                    
     structure  of the  North Slope.   This  is the  State's                                                                    
     long term fiscal interest plan.                                                                                            
                                                                                                                                
     And we ...  were told by the legislature to  go out and                                                                    
     negotiate  it.    We  have  come back  to  you  with  a                                                                    
     negotiated  deal  that gets  the  gas  to market.    We                                                                    
     understand [there  are] a lot  of provisions  here that                                                                    
     people are not  going to like. ... When you  go out and                                                                    
     negotiate a  deal, you don't  get everything  you like;                                                                    
     we set forth goals of  what we thought the state needed                                                                    
     to get  in order to  get a  contract - what  we thought                                                                    
     was a  fair deal.   Revenue was a big  part of it.   We                                                                    
     did things such as take  in gas in-kind; it was because                                                                    
     that was  the only option  available to us  to preserve                                                                    
     our revenue,  to preserve the opportunity  for revenue,                                                                    
     and bump  up the internal rate  of return to make  it a                                                                    
     viable project.                                                                                                            
                                                                                                                                
     There are  a lot of  things in here that  we negotiated                                                                    
     to get  to what we wanted  and some things that  we had                                                                    
     to  compromise in  the middle  on,  and we  understand,                                                                    
     absolutely, that  this is a  tough decision  ...; there                                                                    
     are parts of it that  ... people out there aren't going                                                                    
     to  like, but  there's  a  lot of  it  that people  are                                                                    
     [going to like].                                                                                                           
                                                                                                                                
MR.  JARDELL  indicated that  if,  after  the public  process  is                                                               
concluded, the  legislature ultimately  disapproves of  the terms                                                               
of the ASGF Contract, a different course can then be pursued.                                                                   
                                                                                                                                
CO-CHAIR RAMRAS  remarked that a memorandum  from Daniel Johnston                                                               
suggests  that   the  state,  through  various   concessions,  is                                                               
actually  going to  pay for  the gas  pipeline.   Co-Chair Ramras                                                               
said he does not question that  the state would benefit from $105                                                               
billion over the  next 35 years.  However, isn't  it also fair to                                                               
say that  the state will be  subsidizing the cost of  the project                                                               
to the tune of $30 billion?                                                                                                     
                                                                                                                                
MR. JARDELL indicated that others  could more appropriately speak                                                               
to "the offsets"  that will occur due to the  sharing of expenses                                                               
and to some of the  credits currently being offered.  "Absolutely                                                               
we are  going to share in  the costs; it's part  of the balancing                                                               
act  of   making  the   project  viable,   as  directed   by  the                                                               
legislature, to  bring this [gas] to  market," he added.   In the                                                               
end, that balancing  provides for a project  that otherwise would                                                               
not exist, that  gets Alaska's gas to market,  that complies with                                                               
the  Alaska  Stranded  Gas  Development  Act,  and  that  puts  a                                                               
contract to market Alaska's gas  in front of the state's citizens                                                               
so  that  they can  decide  whether  this  shall  be the  way  of                                                               
proceeding.                                                                                                                     
                                                                                                                                
9:37:36 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CRAWFORD  offered   his  understanding  that  the                                                               
reserves  tax  was  anticipated  when  the  Alaska  Stranded  Gas                                                               
Development Act  was written;  that Representatives  Whitaker and                                                               
Croft introduced a reserves tax  in 1998; and that Representative                                                               
Whitaker  was one  of  the  authors of  the  Alaska Stranded  Gas                                                               
Development Act  and he  always expected  to have  such a  tax in                                                               
order  to use  it as  a tool  to help  force construction  of the                                                               
[gas] pipeline  and keep it  from being delayed.   Representative                                                               
Crawford  characterized the  reserves tax  as providing  "earnest                                                               
money"  to  ensure  that  producers   diligently  pursue  such  a                                                               
project.   Under the terms of  the ASGF Contract, he  opined, any                                                               
"diligence provisions"  are virtually non-existent.   "We want to                                                               
have the reserves  tax there so that there's  an actual financial                                                               
penalty if,  at some  point, the oil  companies decide  that they                                                               
want  to pull  out of  this project  or ...  [if] they  don't get                                                               
[the]  job  done;   what  we  want  are   clear  guidelines  with                                                               
benchmarks ... that  we can see," he added, and  if the producers                                                               
meet those  guidelines, they will  get all of the  reserves taxes                                                               
back;  hence,   a  reserves  tax   would  act  as   an  incentive                                                               
encouraging the producers to act quickly.                                                                                       
                                                                                                                                
MR.  JARDELL clarified  that Representative  Whitaker was  not in                                                               
office  when   the  Alaska  Stranded  Gas   Development  Act  was                                                               
introduced  and adopted,  but acknowledged  that he  can't recall                                                               
whether at that time there  were discussions regarding a reserves                                                               
tax.   He  added that  the administration's  viewpoint is  that a                                                               
reserves  tax "will  kill the  gas pipeline  and prevent  us from                                                               
getting that gas to market."                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON pointed  out that should a  reserves tax be                                                               
passed by  the voters, the  legislature has ability to  repeal it                                                               
after  two years.   He  also pointed  out that  in negotiating  a                                                               
contract,  the administration  went well  outside the  parameters                                                               
that had  been set for such  negotiations.  He opined  that it is                                                               
presumptuous  of  the administration  to  ask  for the  power  to                                                               
"change the initiative before  it passes"; furthermore, according                                                               
to a  May 29 memorandum  from Barnes &  Casio, LLP, Article  5 of                                                               
the ASGF  Contract contains  a termination  process that  will be                                                               
virtually  impossible for  the legislature  to make  use of.   He                                                               
questioned how such constraints can be justified.                                                                               
                                                                                                                                
9:43:12 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  SAMUELS pointed  out that  if an  indemnification of  a                                                               
reserves tax is added to the  ASGF Contract and it's a big enough                                                               
sticking point with enough legislators,  the legislature can vote                                                               
"No"  on  the  contract.    He  suggested  that  what  should  be                                                               
considered  at  this  point  in  time is  what  tools  shall  the                                                               
incoming  administration be  left with;  for example,  should the                                                               
next administration  be able to  take gas  in-kind or be  able to                                                               
use arbitration.   He  offered his  recollection that  no members                                                               
voted against either  the Alaska Stranded Gas  Development Act or                                                               
the subsequent  amendments to it,  adding that  [the legislature]                                                               
needs to  be careful about  which tools  are taken away  from the                                                               
new administration.                                                                                                             
                                                                                                                                
MR. JARDELL,  in response to Representative  Seaton, acknowledged                                                               
that the  administration has come  before the  legislature asking                                                               
that the  scope of what it  would be allowed to  do regarding the                                                               
negotiations  be   expanded,  but  argued  that   everything  the                                                               
administration  is asking  for is  in line  with the  purpose and                                                               
intent of the  Alaska Stranded Gas Development Act.   With regard                                                               
to  the proposed  initiative on  a reserves  tax, he  assured the                                                               
committee  that the  administration  doesn't want  to thwart  the                                                               
will of the people and would in  fact like the people to weigh in                                                               
on   the  issue   as  it   pertains  to   the  inclusion   of  an                                                               
indemnification clause in  the ASGF Contract.  He  noted that the                                                               
terms  of  the  ASGF  Contract won't  actually  be  changing  the                                                               
initiative, and  that it will be  up to the courts  to ultimately                                                               
decide, should the initiative on  a reserves tax pass, whether an                                                               
indemnification clause  would supersede it.   He also  noted that                                                               
the  legislature could  choose to  refund the  producers, in  the                                                               
form of tax credits, the amount of a reserves tax.                                                                              
                                                                                                                                
REPRESENTATIVE  SEATON  asked  for  clarification  regarding  the                                                               
state's inability to  get out of the  ASGF Contract, specifically                                                               
in light  of the contract's provisions  regarding indemnification                                                               
against a  reserves tax  and preclusion of  an increase  in taxes                                                               
for the life of the contract.                                                                                                   
                                                                                                                                
MR. JARDELL  acknowledged that  if the  opinion expressed  in the                                                               
aforementioned memorandum  is true,  than it  does raise  a valid                                                               
concern.  He  asked the committee to give  the administration the                                                               
authority -  via HB 2004  - to  renegotiate the ASGF  Contract to                                                               
the legislature's satisfaction.                                                                                                 
                                                                                                                                
REPRESENTATIVE GATTO  expressed discomfort with the  provision in                                                               
the contract  that would indemnify  producers against  a reserves                                                               
tax passed by  initiative, because such a  provision would thwart                                                               
the will of the people.                                                                                                         
                                                                                                                                
9:55:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   LeDOUX    drew   attention   to    proposed   AS                                                               
43.82.210(a)(4)-(6), and asked  what municipalities are currently                                                               
levying the taxes referred to in that language.                                                                                 
                                                                                                                                
MR. JARDELL  said he  didn't have  that information  available at                                                               
this time, but would endeavor to provide it later.                                                                              
                                                                                                                                
CO-CHAIR SAMUELS, after  ascertaining that no one  else wished to                                                               
testify, closed  public testimony  on HB  2004, and  recessed the                                                               
House Resources Standing Committee at 9:56 a.m.                                                                                 
                                                                                                                                
CO-CHAIR SAMUELS  called the  House Resources  Standing Committee                                                               
meeting back  to order at  2:34:11 PM.   Representatives Samuels,                                                             
Ramras,  Seaton, Olson,  Gatto, and  Elkins were  present at  the                                                               
call  back  to  order.   Representatives  LeDoux,  Crawford,  and                                                               
Kapsner  arrived  as  the reconvened  meeting  was  in  progress.                                                               
Representatives  Neuman, Kerttula,  and Guttenberg  were also  in                                                               
attendance.                                                                                                                     
                                                                                                                                
CO-CHAIR SAMUELS  referred to Amendment  1, which  read [original                                                               
punctuation provided but formatting changed]:                                                                                   
                                                                                                                                
        Page 4, Line 29:  after "suit" insert "including                                                                        
     arbitration".                                                                                                              
                                                                                                                                
     Page 4, Line 31 - Page 5, Line 1:  Delete" granted in                                                                      
     this subsection" and insert the following in its place                                                                     
     "to enter and enforce an arbitration award in a state                                                                      
     other than Alaska".                                                                                                        
                                                                                                                                
2:34:57 PM                                                                                                                    
                                                                                                                                
[A motion to move the bill from committee was ignored.]                                                                         
                                                                                                                                
REPRESENTATIVE SEATON made a motion to adopt Amendment 1.                                                                       
                                                                                                                                
CO-CHAIR SAMUELS objected for the purpose of discussion.                                                                        
                                                                                                                                
MR. JARDELL explained  that Amendment 1 would  clarify Section 4;                                                               
as  currently  written,  Section  4 would  preclude  the  use  of                                                               
arbitration prior  to receiving  an arbitrator's award,  and this                                                               
doesn't make sense given that  an arbitrator's award would not be                                                               
given  until arbitration  was entered  into.   Amendment 1  would                                                               
clarify that  the State  can enter  into arbitration  and utilize                                                               
the arbitration process.                                                                                                        
                                                                                                                                
CO-CHAIR  SAMUELS noted  that as  currently written,  Amendment 1                                                               
appears to be altering Section 6 rather than Section 4.                                                                         
                                                                                                                                
REPRESENTATIVE SEATON observed that  the page numbers referred to                                                               
in Amendment 1 merely need to be  changed from pages 4 [and 5] to                                                               
pages 3 [and 4].                                                                                                                
                                                                                                                                
The committee took an at-ease from 2:36 p.m. to 2:37 p.m.                                                                       
                                                                                                                                
2:37:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS made a motion to  amend Amendment 1 such that it                                                               
would  refer  to pages  3  and  4.    There being  no  objection,                                                               
Amendment 1 was amended.                                                                                                        
                                                                                                                                
MR. JARDELL explained  that the first portion of  Amendment 1, as                                                               
amended,  would  clarify that  "the  state  contract can  utilize                                                               
alternative  dispute resolutions  through arbitration,"  and that                                                               
the last  portion of Amendment  1, as amended, would  ensure that                                                               
the  authority to  enter and  enforce an  arbitration award  in a                                                               
state other than  Alaska is effective only  after the arbitration                                                               
award  is  entered  and  enforcement  is  sought  in  the  Alaska                                                               
Superior  Court.   Currently under  the contract,  he added,  any                                                               
arbitration award  would have to  be filed with an  Alaskan court                                                               
first, and if the enforcement  didn't happen within the specified                                                               
time,  then  the  [recipient]  could   seek  enforcement  of  the                                                               
arbitrator's award in another state.                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON  questioned whether it is  the intention to                                                               
provide  a waiver  of the  state's immunity  from arbitration  as                                                               
well as from suit.                                                                                                              
                                                                                                                                
MR. JARDELL  said it  is; with  the adoption  of Amendment  1, as                                                               
amended, the  ASGF Contract could  then contain a  provision that                                                               
would  waive  the state's  immunity  from  arbitration.   Such  a                                                               
waiver  would be  required  in order  for the  state  to use  the                                                               
arbitration  process.   In response  to  questions, he  indicated                                                               
that  including  terms  relating  to  arbitration  and  alternate                                                               
dispute resolution in the ASGF  Contract would be optional rather                                                               
than  mandatory; that  if such  terms are  included, those  terms                                                               
could  specify  whether arbitration  must  be  undertaken in  all                                                               
cases or  just in  some cases; that  currently the  ASGF Contract                                                               
specifies that  arbitration is the  preferred method  of settling                                                               
disputes;  and that  an arbitration  decision will  be the  final                                                               
decision - in other words, it will be binding arbitration.                                                                      
                                                                                                                                
REPRESENTATIVE LeDOUX  turned attention  to page  4, line  2, and                                                               
asked whether  the term, "the  state" should instead  read, "this                                                               
state".                                                                                                                         
                                                                                                                                
MR. JARDELL offered  his understanding that the  drafters use the                                                               
term, "the state" to mean the  state of Alaska, and so he doesn't                                                               
think it matters if that term is changed.                                                                                       
                                                                                                                                
REPRESENTATIVE   LeDOUX  and   REPRESENTATIVE  GATTO   indicated,                                                               
however, that with  the adoption of Amendment 1,  as amended, the                                                               
term, "the state" as  used on page 4, line 2,  would no longer be                                                               
clear that what is meant is the state of Alaska.                                                                                
                                                                                                                                
2:46:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LeDOUX made  a motion  to amend  Amendment 1,  as                                                               
amended, to  add the words,  "of Alaska" after the  word, "state"                                                               
on  page 4,  line  2, of  HB  2004.   There  being no  objection,                                                               
Amendment 1, as amended, was further amended in this fashion.                                                                   
                                                                                                                                
CO-CHAIR SAMUELS  removed his objection, and  asked whether there                                                               
were any further  objections to Amendment 1,  as amended [twice].                                                               
There being none, Amendment 1, as amended, was adopted.                                                                         
                                                                                                                                
2:46:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS referred to  Amendment 2, labeled 24-GH2046\A.2,                                                               
Bailey, 6/2/06, which read:                                                                                                     
                                                                                                                                
     Page 6, following line 18:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 11. AS 43.82.435 is  amended by adding a new                                                                
     subsection to read:                                                                                                        
          (b)  A contract authorized by this section and                                                                        
     executed by  the governor  may contain  provisions that                                                                    
     provide  for   amendment  of  contract   terms  without                                                                    
     further  action by  the  legislature,  except that  any                                                                    
     term  relating to  taxes described  in AS 43.82.210(a),                                                                    
     or payments in  lieu of such taxes, may  not be amended                                                                    
     without  further legislative  authorization under  this                                                                    
     section."                                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 23:                                                                                                          
          Delete "Sections 1 - 12, 15, 16, and 18"                                                                              
          Insert "Sections 1 - 13, 16, 17, and 19"                                                                              
                                                                                                                                
     Page 10, line 25:                                                                                                          
          Delete "Section 17"                                                                                                   
          Insert "Section 18"                                                                                                   
                                                                                                                                
CO-CHAIR SAMUELS  explained that  Amendment 2 would  clarify that                                                               
contract  terms that  pertain to  taxes [or  payments in  lieu of                                                               
such  taxes]  may  not be  amended  without  further  legislative                                                               
action.                                                                                                                         
                                                                                                                                
CO-CHAIR RAMRAS made a motion to adopt Amendment 2.                                                                             
                                                                                                                                
CO-CHAIR SAMUELS objected [for the purpose of discussion].                                                                      
                                                                                                                                
CO-CHAIR RAMRAS indicated approval of Amendment 2.                                                                              
                                                                                                                                
REPRESENTATIVE SEATON  pointed out that Amendment  2 specifically                                                               
stipulates that  the contract can  contain provisions  that allow                                                               
[the  administration]  to  alter  terms unrelated  to  taxes  [or                                                               
payments in lieu of such taxes] without legislative approval.                                                                   
                                                                                                                                
CO-CHAIR SAMUELS concurred.                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON  asked  whether, under  Amendment  2,  the                                                               
contract   could   then   contain  a   provision   allowing   the                                                               
administration to change terms related to tax credits.                                                                          
                                                                                                                                
CO-CHAIR  SAMUELS   acknowledged  that   that  point   should  be                                                               
clarified.                                                                                                                      
                                                                                                                                
CO-CHAIR SAMUELS [made  a motion to amend] Amendment  2 such that                                                               
the words,  "taxes described in"  are altered to read,  "taxes or                                                               
credits described  in".   There being  no objection,  Amendment 2                                                               
was amended.                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON suggested that  Amendment 2, as amended, be                                                               
considered conceptual so  as to allow the drafter  to include the                                                               
correct statutory references pertaining to credits.                                                                             
                                                                                                                                
CO-CHAIR  SAMUELS  concurred.    [Amendment 2,  as  amended,  was                                                               
treated as a conceptual amendment.]                                                                                             
                                                                                                                                
CO-CHAIR   SAMUELS   removed    his   objection   to   Conceptual                                                               
Amendment 2,  as  amended,  and  asked  whether  there  were  any                                                               
further objections.   There being  none, Conceptual  Amendment 2,                                                               
as amended, was adopted.                                                                                                        
                                                                                                                                
CO-CHAIR SAMUELS  referred to Amendment  3, which  read [original                                                               
punctuation provided but some formatting changed]:                                                                              
                                                                                                                                
     AS 43.82 is amended by adding a new section to read:                                                                       
                                                                                                                                
          Sec. 43.82.255. Term of contract provisions                                                                         
     related to oil. (a) The  provisions of this section may                                                                  
     apply to  a contract developed under  AS 43.82.020 that                                                                    
     provides for periodic  payment in lieu of  taxes on oil                                                                    
     under AS 43.55.                                                                                                            
          (b) For the part of the contract term beginning                                                                       
     immediately after  the date of full  project funding or                                                                    
     the  date  of  issuance  of  a  certificate  of  public                                                                    
     convenience and necessity  for construction and initial                                                                    
     operation   of  the   Alaska   Natural  Gas   Pipeline,                                                                    
     whichever  date is  later, and  ending  14 years  after                                                                    
     that date, the commissioner may  develop a term for the                                                                    
     contract  that provides  for payments  in  lieu of  the                                                                    
     taxes on oil set out in AS  43.55.  For the part of the                                                                    
     contract term covered by  this subsection, the payments                                                                    
     in  lieu  of taxes  may  be  established with  as  much                                                                    
     certainty as  the Constitution of  the State  of Alaska                                                                    
     allows.                                                                                                                    
          (c) For the part of the contract term beginning                                                                       
     immediately after  the period described in  (b) of this                                                                    
     section, and ending  on a date not later  than 25 years                                                                    
     after the  effective date of  the contract,  the amount                                                                    
     of the  payment in lieu  of tax  on oil under  AS 43.55                                                                    
     must be equal  to the amount of the tax  levied by law.                                                                    
     However, the  commissioner may develop a  contract term                                                                    
     that, in  the event of  a material change in  the taxes                                                                    
     enacted  after  the  effective date  of  the  contract,                                                                    
     establishes a  procedure for  restoring the  parties to                                                                    
     substantially the  same economic  position they  had as                                                                    
     of  the end  of the  period  described in  (b) of  this                                                                    
     section immediately before the change.                                                                                     
          (d) Implementation of a contract provision                                                                            
     authorized in this  section may be made  subject to the                                                                    
     dispute resolution procedures of the contract.                                                                             
                                                                                                                                
2:51:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS made a motion to adopt Amendment 3.                                                                             
                                                                                                                                
CO-CHAIR SAMUELS objected for the  purpose of discussion.  Noting                                                               
that the ASGF Contract locks in  oil [tax rates] for 30 years, he                                                               
explained  that  Amendment  3 takes  into  account  a  three-part                                                               
scenario.    The   first  part  -  which  is   not  addressed  by                                                               
Amendment 3 -  is that there will  be no fiscal certainty  on oil                                                               
until  after the  date of  full project  funding or  the date  of                                                               
issuance of a  certificate of public convenience  and necessity -                                                               
which  is when  the Federal  Energy Regulatory  Commission (FERC)                                                               
has sanction - and full  project funding usually occurs after the                                                               
FERC  sanction;  in  other  words,   there  shall  be  no  fiscal                                                               
certainty  until after  the project  is sanctioned.   The  second                                                               
part  -  which  is  addressed via  proposed  AS  43.82.255(b)  of                                                               
Amendment  3 -  is that  after project  sanction or  full project                                                               
funding, there shall be full  capital cost recovery, for a period                                                               
of 14  years, before  the tax  rules can be  changed.   The third                                                               
part  -  which  is  addressed via  proposed  AS  43.82.255(c)  of                                                               
Amendment  3  -  is  that  there shall  be  a  "fiscal  balancing                                                               
agreement"  after   the  period   referred  to  in   proposed  AS                                                               
43.82.255(b),  [though  for no  later  than  25 years  after  the                                                               
effective  date of  the contract];  this provision  requires that                                                               
any changes  to the tax rules  will result in the  total economic                                                               
impact to the industry remaining the  same, just as if no changes                                                               
had been made.                                                                                                                  
                                                                                                                                
CO-CHAIR  SAMUELS  indicated that  delays  in  the project  won't                                                               
impact this three  part scenario or its  timelines, and remarked,                                                               
"It's a three-phase certainty on  oil [in] which they get nothing                                                               
in the  front end, they  get it locked in  in the middle,  and at                                                               
the end we all come back to the table."                                                                                         
                                                                                                                                
2:56:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSEN asked  whether fiscal  balancing mechanisms                                                               
are currently in use in other jurisdictions.                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS relayed that they are.                                                                                         
                                                                                                                                
REPRESENTATIVE  CRAWFORD noted  that one  of the  [legislature's]                                                               
consultants has said that they  have identified approximately $16                                                               
billion  worth  of direct  subsidies  in  the ASGF  Contract  and                                                               
expect to find more.                                                                                                            
                                                                                                                                
CO-CHAIR SAMUELS indicated that Amendment  3 pertains to just oil                                                               
taxes and has nothing to do with gas.                                                                                           
                                                                                                                                
REPRESENTATIVE  CRAWFORD  pointed  out  that  the  aforementioned                                                               
subsidies  to  the oil  companies  pertain  to the  gas  pipeline                                                               
project and  that the fiscal  certainty with regard to  oil taxes                                                               
that Amendment  3 provides for is  also tied to the  gas pipeline                                                               
project.                                                                                                                        
                                                                                                                                
CO-CHAIR SAMUELS said  he did not look too much  at the gas terms                                                               
in  the ASGF  Contract;  rather,  he and  others  are simply  not                                                               
willing to lock  in oil taxes for 30 years,  and Amendment 3 will                                                               
alleviate some of that concern.                                                                                                 
                                                                                                                                
REPRESENTATIVE LeDOUX asked which  other jurisdictions use fiscal                                                               
balancing mechanisms  and what the  reasoning was behind  using a                                                               
14-year timeframe in proposed AS 43.82.255(b).                                                                                  
                                                                                                                                
CO-CHAIR  SAMUELS relayed  that  he didn't  have the  information                                                               
regarding  the other  jurisdictions  with him  at  this time  but                                                               
would provide it later, and  that the economists he'd spoken with                                                               
gave him a range  of 12 to 15 years and so  he'd simply chosen to                                                               
use 14 years.                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  questioned how Amendment 3  will work with                                                               
Amendment  2,  as amended,  given  that  Amendment 3  allows  for                                                               
contract terms related  to Payment in Lieu of Taxes  (PILT) to be                                                               
developed after the  contract is in place, while  Amendment 2, as                                                               
amended, prohibits such contract term  changes to be made without                                                               
further   legislative  approval.      He   also  questioned   how                                                               
Amendment 3 fulfills Co-Chair Samuels's  intention to not provide                                                               
fiscal certainty until project sanction.                                                                                        
                                                                                                                                
CO-CHAIR  SAMUELS  offered  his understanding  that  proposed  AS                                                               
43.82.255(b)  says  that  [the   producers]  cannot  have  fiscal                                                               
certainty until full project funding occurs.                                                                                    
                                                                                                                                
3:02:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked whether  the wording [in Amendment 3]                                                               
is  clear enough  to  allow  the legislature  to  change the  tax                                                               
structure between now and project sanction.                                                                                     
                                                                                                                                
CO-CHAIR SAMUELS said that is certainly the intent.                                                                             
                                                                                                                                
CO-CHAIR  RAMRAS expressed  disfavor with  the 14-year  timeframe                                                               
outlined in proposed AS 43.82.255(b),  with the 25-year timeframe                                                               
outlined in  proposed AS  43.82.255(c), and  with the  concept of                                                               
fiscal balancing as outlined in proposed AS 43.82.255(c).                                                                       
                                                                                                                                
CO-CHAIR SAMUELS,  in response  to a  question, relayed  that the                                                               
definition  of,  "full project  funding"  is  located in  statute                                                               
under the  Alaska Stranded  Gas Development  Act:   "full project                                                               
funding" means  full approval by a  party to a contract  under AS                                                               
43.82.020  for  the  expenditure  of the  capital  necessary  for                                                               
construction  and operation  of  the  approved qualified  project                                                               
that is subject to the contract".                                                                                               
                                                                                                                                
CO-CHAIR RAMRAS  expressed favor  with proposed  AS 43.82.255(a),                                                               
questioned the math being used to  justify the use of the 14-year                                                               
timeframe   in  proposed   AS  43.82.255(b),   and  remarked   on                                                               
conversations he'd  had with the  Senate president  regarding the                                                               
various  timeframes  for  different  aspects  of  the  project  -                                                               
specifically that he  was under the impression  that full capital                                                               
cost recovery  could occur within  double the number of  years it                                                               
takes to construct the project.                                                                                                 
                                                                                                                                
CO-CHAIR  SAMUELS  offered his  understanding  that  it would  be                                                               
roughly five  years before project  sanction occurs,  followed by                                                               
five years  of construction, and  then another seven  years after                                                               
that for full capital cost recovery to occur.                                                                                   
                                                                                                                                
CO-CHAIR RAMRAS  said he interprets  the language in  proposed AS                                                               
43.82.255(b) that says,  "whichever date is later,  and ending 14                                                               
years after  that date,"  to mean  that there  will be  a project                                                               
sanction period -  which goes for five years -  and then the "14-                                                               
year clock starts running after" the  four or five years it takes                                                               
to obtain project sanction.                                                                                                     
                                                                                                                                
CO-CHAIR  SAMUELS, concurred,  and  in response  to comments  and                                                               
questions wherein an  example of a starting date  was given, said                                                               
that the 25-year period begins on  the effective date of the ASGF                                                               
Contract.   Thus, every  year of  delay of  the project  from the                                                               
contract's effective date is a  year less that the producers have                                                               
to take advantage  of the fiscal balancing  mechanism referred to                                                               
in  proposed AS  43.82.255(c).   In  response to  comments and  a                                                               
question,  he  indicated that  all  of  proposed AS  43.82.255(c)                                                               
pertains to fiscal balancing.                                                                                                   
                                                                                                                                
3:12:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SAMUELS,   in  response  to  queries,   reiterated  his                                                               
explanation  of Amendment  3  and  the aforementioned  three-part                                                               
scenario,  and   offered  his   understanding  that   the  fiscal                                                               
balancing  agreement provided  for  by  proposed AS  43.82.255(c)                                                               
will allow changes  to be made to the terms  related to oil while                                                               
also requiring that the economic  positions of the parties remain                                                               
"flat."   He pointed out,  though, that proposed  AS 43.82.255(c)                                                               
may never come into play,  depending on how soon project sanction                                                               
is obtained  [and how soon  after that that the  project actually                                                               
gets built].                                                                                                                    
                                                                                                                                
REPRESENTATIVE LeDOUX asked  why they would bother  to change the                                                               
contract  if   under  proposed   AS  43.82.255(c)   the  economic                                                               
positions of all parties remains the same.                                                                                      
                                                                                                                                
CO-CHAIR SAMUELS  suggested that proposed AS  43.82.255(c) serves                                                               
as a  compromise, and offered that  there may be many  reasons to                                                               
renegotiate  the terms  of the  contract that  "don't affect  the                                                               
money."                                                                                                                         
                                                                                                                                
REPRESENTATIVE  LeDOUX  questioned,  though, why  they  shouldn't                                                               
always be able to renegotiate such terms.                                                                                       
                                                                                                                                
CO-CHAIR  SAMUELS characterized  that  as  a legitimate  argument                                                               
[against locking in the terms of the agreement].                                                                                
                                                                                                                                
REPRESENTATIVE CRAWFORD  asked what the practical  effect will be                                                               
of leaving  the terms  pertaining to  oil open  for renegotiation                                                               
during the period prior to project  sanction.  He also raised the                                                               
question  of what  might happen  if  MidAmerican Energy  Holdings                                                               
Company  or  TransCanada PipeLines  Limited  decides  to build  a                                                               
pipeline.                                                                                                                       
                                                                                                                                
CO-CHAIR  SAMUELS,  to the  latter  question,  remarked that  the                                                               
whole thing  would be a moot  point and everything would  have to                                                               
be renegotiated.   In response  to another question,  he ventured                                                               
that the provisions  of Amendment 3 would only apply  if the ASGF                                                               
Contract  passes, because  the provisions  of  the ASGF  contract                                                               
that propose  to lock in the  terms pertaining to oil  are unique                                                               
to  that  contract.   He  offered  that  under Amendment  3,  the                                                               
concerns  that the  industry  doesn't really  want  to build  the                                                               
pipeline to begin  with should be alleviated by the  fact that if                                                               
they don't  build the gas pipeline  - if the producers  don't get                                                               
to project sanction  - then the legislature can  change the [oil]                                                               
taxes whenever  it wants and as  often as it wants  regardless of                                                               
whether a contract has been signed.                                                                                             
                                                                                                                                
3:19:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  questioned  whether the  proposed  fiscal                                                               
balancing agreement  provided for in proposed  AS 43.82.255(c) of                                                               
Amendment 3 would  also be applied in cases  involving changes to                                                               
municipal taxes.                                                                                                                
                                                                                                                                
CO-CHAIR  SAMUELS  indicated  that  it would.    In  response  to                                                               
comments,  he  reiterated  his  belief  that  the  provisions  of                                                               
Amendment 3  would only apply  to the  ASGF Contract and  only if                                                               
that specific contract is approved and executed.                                                                                
                                                                                                                                
CO-CHAIR  RAMRAS argued  that Amendment  3 does  not specifically                                                               
refer to the ASGF Contract.                                                                                                     
                                                                                                                                
CO-CHAIR  SAMUELS pointed  out,  however, that  Amendment 3  does                                                               
specify  that the  contract to  which it  applies must  have been                                                               
developed   under  AS   43.82.020,   the   Alaska  Stranded   Gas                                                               
Development Act,  which is [purportedly]  what the  ASGF Contract                                                               
was developed under.                                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON questioned whether  Amendment 3 really only                                                               
applies to PILT on oil.                                                                                                         
                                                                                                                                
CO-CHAIR SAMUELS offered his understanding  that Amendment 3 will                                                               
apply  to  a contract  developed  under  AS 43.82.020  that  also                                                               
happens to  provide for PILT on  oil, adding that he  is assuming                                                               
that there will be PILT in  situations where oil taxes are locked                                                               
in.                                                                                                                             
                                                                                                                                
MR. DONOHUE  indicated that it  is the  intent of the  parties to                                                               
have  the  production  profits  tax  (PPT)  incorporated  into  a                                                               
contract  so as  to  ensure that  it plays  a  roll in  providing                                                               
fiscal certainty to the producers.                                                                                              
                                                                                                                                
CO-CHAIR  SAMUELS,  in  response   to  comments,  suggested  that                                                               
Amendment 3  should be clarified  with regard to whether  it only                                                               
applies to PILT on oil.                                                                                                         
                                                                                                                                
3:24:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS, in response to  other questions, indicated that                                                               
the intention [with  Amendment 3 - and] in  relation to Amendment                                                               
2, as  amended - would  be that whatever  terms were in  place at                                                               
time of project  sanction with regard to oil would  be locked in;                                                               
therefore, at the time of  project sanction, the legislature will                                                               
have to decide what the rates on oil should be set at.                                                                          
                                                                                                                                
REPRESENTATIVE LeDOUX  surmised, then,  that that rate  would not                                                               
necessarily  be  "today's rate"  because  the  rates on  oil  can                                                               
change up until the time of project sanction.                                                                                   
                                                                                                                                
CO-CHAIR SAMUELS concurred, and said that that is the intent.                                                                   
                                                                                                                                
REPRESENTATIVE  GATTO  referred  to   the  definition  of,  "full                                                               
project funding" in the Alaska  Stranded Gas Development Act, and                                                               
surmised that  the producers wouldn't necessarily  have to accept                                                               
a tax rate that they felt was unreasonable.                                                                                     
                                                                                                                                
CO-CHAIR SAMUELS concurred, suggesting  that in such a situation,                                                               
the  producers   could  simply  decide  not   to  pursue  project                                                               
sanction.  In response to a  comment, he reiterated that there is                                                               
no  fiscal certainty  being provided  until  project sanction  is                                                               
obtained.                                                                                                                       
                                                                                                                                
CO-CHAIR RAMRAS  mentioned merger  and acquisition  activity, and                                                               
suggested that  the return  that the producers  and the  State of                                                               
Alaska,  through  the  Alaska Natural  Gas  Pipeline  Corporation                                                               
("ANGPC"), will enjoy  will be massive.  He  opined that although                                                               
some degree of fiscal certainty  should be provided for, a period                                                               
of 14  years is too  long, and that there  is no need  for fiscal                                                               
balancing after the expiration of that period.                                                                                  
                                                                                                                                
3:30:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS made  a motion to amend Amendment 3:   to replace                                                               
"14"  with  "10"  in  proposed AS  43.82.255(b),  and  to  delete                                                               
proposed AS 43.82.255(c).                                                                                                       
                                                                                                                                
CO-CHAIR  SAMUELS recommended  dividing the  question, and  asked                                                               
whether a  change to 12 years  would be amenable.   [Although the                                                               
motion was  not restated, Co-Chair  Samuels treated  the question                                                               
as  divided  and  announced  that  Amendment  3  was  amended  by                                                               
replacing "14" with "12" in proposed AS 43.82.255(b).]                                                                          
                                                                                                                                
CO-CHAIR   RAMRAS  [made   a  motion   to]  delete   proposed  AS                                                               
43.82.255(c) from Amendment 3, as amended.                                                                                      
                                                                                                                                
CO-CHAIR SAMUELS objected.                                                                                                      
                                                                                                                                
CO-CHAIR  RAMRAS said  he  objects  to the  notion  of having  to                                                               
lessen taxes in  one area because the taxes in  another area have                                                               
been raised.                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD asked what  will happen after the 12-year                                                               
timeframe has passed if proposed AS 43.82.255(c) is deleted.                                                                    
                                                                                                                                
CO-CHAIR SAMUELS  opined that  deleting proposed  AS 43.82.255(c)                                                               
will result in there not being any fiscal certainty on oil.                                                                     
                                                                                                                                
CO-CHAIR RAMRAS expressed favor with that concept.                                                                              
                                                                                                                                
CO-CHAIR SAMUELS said that he  would be maintaining his objection                                                               
to  deleting  proposed  AS  43.82.255(c)  from  Amendment  3,  as                                                               
amended.  He  offered his belief that companies  which "take firm                                                               
transportation commitments"  will be  "on the  hook to  pay" even                                                               
after capital cost  recovery has been achieved  and regardless of                                                               
the  price of  gas, and  suggested  that some  sort of  stability                                                               
should be provided for the life of the contract.                                                                                
                                                                                                                                
CO-CHAIR RAMRAS argued that those  companies will also be reaping                                                               
extraordinary  benefits,  and  opined that  fiscal  balancing  is                                                               
simply a way of capping the  state's share of revenue - something                                                               
that he objects to as being bad policy.                                                                                         
                                                                                                                                
3:36:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  pointed out that Amendment  3, as amended,                                                               
proposes  to affect  oil rates,  whereas the  aforementioned firm                                                               
transportation commitments pertain to gas.                                                                                      
                                                                                                                                
A  roll call  vote  was taken.    Representatives Elkins,  Gatto,                                                               
LeDoux, Olson,  Seaton, Crawford, and  Kapsner voted in  favor of                                                               
the   second    amendment   to    Amendment   3,    as   amended.                                                               
Representatives Ramras and Samuels  voted against it.  Therefore,                                                               
the second amendment  to Amendment 3, as amended,  was adopted by                                                               
a vote of 7-2.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON  made  a   motion  to  conceptually  amend                                                               
Amendment  3,   as  amended  [twice],   such  that   proposed  AS                                                               
43.82.255(a) be  altered by  adding the  word, "may"  between the                                                               
words, "section" and  "apply", and by adding words on  the end to                                                               
specify the committee's intent,  for example, something along the                                                               
lines of, "certainty for fiscal terms  for oil do not apply until                                                               
project sanction  and will be  the terms  in place at  the time".                                                               
There being  no objection, Amendment  3, as amended  [twice], was                                                               
again amended.                                                                                                                  
                                                                                                                                
CO-CHAIR SAMUELS  removed his objection, and  asked whether there                                                               
were any  further objections to  Amendment 3, as amended.   There                                                               
being none, Amendment 3, as amended, was adopted.                                                                               
                                                                                                                                
3:39:19 PM                                                                                                                    
                                                                                                                                
[Following  was  a  brief discussion  regarding  which  amendment                                                               
would be taken up as Amendment 4.]                                                                                              
                                                                                                                                
REPRESENTATIVE GATTO made a motion  to adopt Amendment 4, labeled                                                               
24-GH2046\A.3,  Bailey,  6/3/06,  which,  along  with  additional                                                               
text, read:                                                                                                                     
                                                                                                                                
     Page 3, line 25:                                                                                                           
          Delete "long-term fiscal [BEST]"                                                                                  
          Insert "best"                                                                                                         
                                                                                                                                
     Page 4, following line 23:                                                                                                 
     Insert a new bill section to read:                                                                                         
        "* Sec. 6.  AS 43.82.210(b) is amended to read:                                                                       
          (b)  If the commissioner chooses to develop                                                                           
     proposed  terms   under  (a)   of  this   section,  the                                                                    
     commissioner shall, if  practicable and consistent with                                                                    
     the  best [LONG-TERM  FISCAL] interests  of the  state,                                                                
     develop the terms in a  manner that attempts to balance                                                                    
     the following principles:                                                                                                  
               (1)  the terms should, in conjunction with                                                                       
     other factors  such as cost  reduction of  the project,                                                                    
     cost overrun  risk reduction of the  project, increased                                                                    
     fiscal  certainty,  and successful  marketing,  improve                                                                    
     the competitiveness  of the approved  qualified project                                                                    
     in  relation  to  other development  efforts  aimed  at                                                                    
     supplying the same market;                                                                                                 
               (2)  the terms should accommodate the                                                                            
     interests  of the  state, affected  municipalities, and                                                                    
     the  project sponsors  under a  wide range  of economic                                                                    
     conditions,    potential   project    structures,   and                                                                    
     marketing arrangements;                                                                                                    
               (3)        the     state's    and    affected                                                                    
     municipalities' combined share of  the economic rent of                                                                    
     the  approved  qualified  project  under  the  contract                                                                    
     should be relatively progressive;  that is, the state's                                                                    
     and affected  municipalities' combined annual  share of                                                                    
     the  economic rent  of the  approved qualified  project                                                                    
     generally should not increase  when there are decreases                                                                    
     in project  profitability, or  decrease when  there are                                                                    
     increases in project profitability;                                                                                        
               (4)        the     state's    and    affected                                                                    
     municipalities' combined share of  the economic rent of                                                                    
     the  approved  qualified  project  under  the  contract                                                                    
     should be  relatively lower in  the earlier  years than                                                                    
     in the later years of the approved qualified project;                                                                      
               (5)  the terms should allow the project                                                                          
     sponsors to retain a share  of the economic rent of the                                                                    
     approved  qualified  project   that  is  sufficient  to                                                                    
     compensate  the sponsors  for risks  under  a range  of                                                                    
     economic circumstances;                                                                                                    
               (6)  the terms should provide the state and                                                                      
     affected  municipalities with  a  significant share  of                                                                    
     the economic  rent of  the approved  qualified project,                                                                    
     when  discounted  to  present  value,  under  favorable                                                                    
     price and cost conditions;                                                                                                 
               (7)  the method for calculating the periodic                                                                     
     payment  in lieu  of certain  taxes under  the contract                                                                    
     should be clear and unambiguous; and                                                                                       
               (8)  while cost calculations for the                                                                             
     approved  qualified project  under the  contract should                                                                    
     be  based on  amounts that  closely approximate  actual                                                                    
     costs,   agreed-upon  formulas   reflecting  reasonable                                                                    
     economic  assumptions should  be  used  if possible  to                                                                    
     promote administrative certainty and efficiency."                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 6, following line 8:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec. 11.  AS 43.82.260(d) is amended to read:                                                                      
          (d)  The commissioner may not unreasonably                                                                            
     withhold approval  under (a)  of this section,  but may                                                                    
     condition the approval in  any way reasonably necessary                                                                    
     to  protect the  best [FISCAL]  interests of  the state                                                                
     and to further the purposes of this chapter."                                                                              
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 6, following line 18:                                                                                                 
     Insert new bill sections to read:                                                                                          
        "* Sec. 13.  AS 43.82.310(b) is amended to read:                                                                      
          (b)  If requested by the applicant, information                                                                       
     provided  to   the  commissioner  of  revenue   or  the                                                                    
     commissioner  of natural  resources under  AS 43.82.300                                                                    
     shall   be  kept   confidential  if   the  commissioner                                                                    
     receiving the information  determines, upon an adequate                                                                    
     showing by the applicant, that the information                                                                             
               (1)  is a trade secret or other proprietary                                                                      
     research, development,  or commercial  information that                                                                    
     the applicant treats as confidential;                                                                                      
               (2)  affects the applicant's competitive                                                                         
     position; and                                                                                                              
               (3)  has commercial value that may be                                                                            
     significantly diminished  by public disclosure  or that                                                                    
     public  disclosure  is  not   in  the  best  [LONG-TERM                                                                
     FISCAL] interests of the state.                                                                                            
        * Sec. 14.  AS 43.82.310(c) is amended to read:                                                                       
          (c)  Information determined to be confidential                                                                        
     under (b)  of this  section is confidential  under that                                                                    
     subsection only so long as  is necessary to protect the                                                                    
     competitive position  of the applicant, to  prevent the                                                                    
     significant diminution  of the commercial value  of the                                                                    
     information, or to protect  the best [LONG-TERM FISCAL]                                                                
     interests of the state. The  commissioner of revenue or                                                                    
     the commissioner of  natural resources, as appropriate,                                                                    
     may not  release information that the  commissioner has                                                                    
     previously determined  to be confidential under  (b) of                                                                    
     this  section without  providing  the applicant  notice                                                                    
     and an opportunity to be heard.                                                                                            
        * Sec. 15.  AS 43.82.400(a) is amended to read:                                                                       
          (a)  If the commissioner develops a proposed                                                                          
     contract   under   AS 43.82.200    -   43.82.270,   the                                                                    
     commissioner shall                                                                                                         
               (1)  make preliminary findings and a                                                                             
     determination that  the proposed contract terms  are in                                                                    
     the best [LONG-TERM FISCAL] interests  of the state and                                                                
     further the purposes of this chapter; and                                                                                  
               (2)  prepare a proposed contract that                                                                            
     includes those  terms and shall submit  the contract to                                                                    
     the governor.                                                                                                              
        * Sec. 16.  AS 43.82.430(b) is amended to read:                                                                       
          (b) After considering the material described in                                                                       
     (a) of this  section and securing the  agreement of the                                                                    
     other parties  to the  proposed contract  regarding any                                                                    
     proposed   amendments  prepared   under  (a)   of  this                                                                    
     section,  if  the   commissioner  determines  that  the                                                                    
     contract is  in the  best [LONG-TERM  FISCAL] interests                                                                
     of  the  state,  the   commissioner  shall  submit  the                                                                    
     contract to the governor."                                                                                                 
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 23:                                                                                                          
          Delete "Sections 1 - 12, 15, 16, and 18"                                                                              
          Insert "Sections 1 - 18, 21, 22, and 24"                                                                              
                                                                                                                                
     Page 10, line 25:                                                                                                          
          Delete "Section 17"                                                                                                   
          Insert "Section 23"                                                                                                   
                                                                                                                                
CO-CHAIR SAMUELS objected for the purpose of discussion.                                                                        
                                                                                                                                
REPRESENTATIVE  GATTO, indicating  that Amendment  4 pertains  to                                                               
the  issue of  "best  interest findings,"  and  using an  example                                                               
regarding  coal bed  methane (CBM)  drilling  and the  Matanuska-                                                               
Susitna  (Mat-Su)  valley,  offered  his belief  that  the  term,                                                               
"long-term  fiscal interests"  could be  interpreted to  preclude                                                               
the consideration of any other  factors such as whether an action                                                               
is really in the  best interests of the people of  the state.  He                                                               
suggested that the long-term fiscal  interests can be included as                                                               
part of a best interest finding.                                                                                                
                                                                                                                                
3:42:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  pointed out that Amendment  4 conforms the                                                               
standard used in HB 2004 to  that used in the Alaska Stranded Gas                                                               
Development Act.                                                                                                                
                                                                                                                                
MR.  JARDELL   said  the  administration  opposes   Amendment  4.                                                               
Changing  the  standards  retroactively  -  with  regard  to  the                                                               
process  that the  parties have  been engaged  in -  would create                                                               
enormous problems moving forward.   "Although it is a consistency                                                               
problem, I would  much prefer to leave the  current statute alone                                                               
and  continue with  the best  interest  finding at  the end,  and                                                               
utilize  two different  standards, than  to retroactively  change                                                               
the standards  that we  have used to  date," he  remarked, adding                                                               
that  the   ASGF  Contract  [shouldn't]  be   compared  with  the                                                               
aforementioned example involving CBM.  He went on to say:                                                                       
                                                                                                                                
     Here, the  best interest finding becomes  a proposal to                                                                    
     the   legislature.     It's  not   binding,  it's   not                                                                    
     determinative.   If we make  the best  interest finding                                                                    
     as it's  currently written, we  submit the  contract to                                                                    
     the  legislature, and  the  legislature  will have  the                                                                    
     decision,  ultimately, to  make  the  decision of  best                                                                    
     interest.   The  best interest  finding here  really is                                                                    
     just  a step  before you  propose the  contract to  the                                                                    
     legislature for  the legislature  to make  the decision                                                                    
     of whether it's in the best  interest of the state.  So                                                                    
     the  protections   afforded  to  the  people   of  your                                                                    
     district  are that  you have  a chance  to look  at it,                                                                    
     make  that determination,  before implementation.   And                                                                    
     so I  really don't  think that  [the issues  that] were                                                                    
     raised   in  the   [CBM  situation]   really  have   an                                                                    
     application to how this will  go ... forward and how it                                                                    
     will be implemented.                                                                                                       
                                                                                                                                
MR. JARDELL, in  response to a question, relayed  that the "long-                                                               
term fiscal  interest" standard  was used from  the start  in the                                                               
negotiation process.                                                                                                            
                                                                                                                                
MR.  DONOHUE  explained  that  the  preliminary  fiscal  interest                                                               
findings  have  already  been  issued and  the  basis  for  those                                                               
findings  is an  ultimate decision,  a determination,  that on  a                                                               
preliminary basis  this contract satisfies the  "long-term fiscal                                                               
interests of the state" criterion.   The final findings that will                                                               
be made  after the public  review process, after  the legislative                                                               
comment period,  and after the  renegotiation period,  is subject                                                               
to the same long-term fiscal  interest finding requirement and an                                                               
additional requirement, which is  that the commissioner find that                                                               
the contract is in conformity with  the law, "which is one of the                                                               
reasons  we're here  today," he  added, "to  move the  conforming                                                               
amendments  bill   to  allow  the  commissioner   to  make  those                                                               
findings."   There is only one  place in the Alaska  Stranded Gas                                                               
Development  Act  where  the  term,  "best  interests"  is  used,                                                               
whereas the term, "long-term fiscal  interests" is used much more                                                               
pervasively,  and  the goal  with  the  bill's proposed  language                                                               
change  is  to make  the  terminology  consistent throughout  the                                                               
Alaska Stranded Gas Development Act.                                                                                            
                                                                                                                                
3:48:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LeDOUX asked  why, if the ASGF  Contract really is                                                               
in the  best interests  of the  state, couldn't  the commissioner                                                               
simply  review the  testimony, come  to the  conclusion that  the                                                               
contract is  in the best  interests of  the state, and  amend the                                                               
findings to say that such is the case if indeed it really is.                                                                   
                                                                                                                                
MR. JARDELL  said that if the  term, "best interests" is  left in                                                               
statute, it  would require that  a best interest finding  be made                                                               
prior to  the ASGF Contract  being forwarded to  the legislature.                                                               
He added:                                                                                                                       
                                                                                                                                
     If you  want a  best interest finding,  if that  is the                                                                    
     desire  of the  legislature or  this committee,  then I                                                                    
     would   suggest  that   ...  instead   of  changing   -                                                                    
     retroactively  - all  of the  standards, that  you just                                                                    
     leave  the  best  interest   finding,  and  that  would                                                                    
     require  a best  interest finding  before the  contract                                                                    
     gets submitted to the legislature.                                                                                         
                                                                                                                                
REPRESENTATIVE  LeDOUX surmised,  then,  that the  administration                                                               
can  live with  the first  portion of  Amendment 4  - that  which                                                               
proposes to change the language on page  3, line 25, of HB 2004 -                                                               
but not with the remainder of Amendment 4.                                                                                      
                                                                                                                                
MR. JARDELL indicated agreement.                                                                                                
                                                                                                                                
REPRESENTATIVE   CRAWFORD  opined   that   there   is  either   a                                                               
consistency  problem or  there  is not,  and  surmised that  [the                                                               
administration simply] didn't want "the  rest of the contract" to                                                               
be  consistent  with  "best  interests."   There  are  a  lot  of                                                               
interests that  do not necessarily  fall under the  term, "fiscal                                                               
interests",  he  remarked,  adding  that he  believes  the  State                                                               
should be  negotiating for the  best interests of the  state, not                                                               
just for the  long-term fiscal interests; the  concept of looking                                                               
out for the  best interests of the state is  central to what they                                                               
as legislators should be doing.                                                                                                 
                                                                                                                                
MR.  JARDELL said  that  the administration  thinks  it would  be                                                               
better if the information it  disseminates to the public is based                                                               
on the  same standard  as "the final  standard," and  offered his                                                               
belief that  the administration  always works for  best interests                                                               
of the state.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  CRAWFORD  offered   his  understanding  that  the                                                               
courts have already  defined the term, "best  interests" but have                                                               
not  yet done  so  for the  term,  "long-term fiscal  interests",                                                               
adding  his belief  that using  the term,  "best interests"  will                                                               
provide protection to the state,  protection that is backed up by                                                               
the courts.                                                                                                                     
                                                                                                                                
CO-CHAIR SAMUELS  asked whether Amendment  4 was intended  to act                                                               
retroactively;  in  other  words,  was it  meant  to  change  the                                                               
standard for work that has already been done.                                                                                   
                                                                                                                                
3:54:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO  offered his  belief that  "long-term fiscal                                                               
interests"  is   already  included  in  "best   interests".    He                                                               
remarked:                                                                                                                       
                                                                                                                                
     My thoughts  about Mr. Jardell's statement  that at the                                                                    
     end  of   the  process  you   will  be  able   to  rule                                                                    
     individually on whether or  not this contract satisfies                                                                    
     the best  interests of the  state, that would  mean, at                                                                    
     that point, when  it was done, we would have  to now go                                                                    
     back and review the entire  contract all over again and                                                                    
     try  to  determine for  ourselves  whether  or not  any                                                                    
     specific part was  in the best interests  of the state.                                                                    
     I  can   look  at,   and  accept,   as  [Representative                                                                    
     Crawford] ... has said, that  we can rely on some other                                                                    
     people  to  use  court-determined defined  actions  and                                                                    
     rulings of what  the best interest is.  We  do not have                                                                    
     a  single ruling  on what  a long-term  fiscal interest                                                                    
     is,  so   we  are   leaving  ourselves  wide   open  to                                                                    
     nullifying what the best interests of the state are.                                                                       
                                                                                                                                
REPRESENTATIVE GATTO  suggested that by adopting  Amendment 4, it                                                               
wouldn't necessarily follow  that the parties would  have go back                                                               
and change anything, because the  ASGF Contract already addresses                                                               
the issue of  long-term fiscal interests, and so  using the term,                                                               
"best  interests"  merely  adds   another  measure  by  which  to                                                               
consider the terms of the contract.                                                                                             
                                                                                                                                
CO-CHAIR  SAMUELS expressed  concern with  changing the  standard                                                               
retroactively.                                                                                                                  
                                                                                                                                
MR. JARDELL pointed  out that currently, the  Alaska Stranded Gas                                                               
Development  Act -  in  AS 43.82.210(b)  -  speaks to  developing                                                               
terms  that  in  addition  to   being  in  the  long-term  fiscal                                                               
interests of the state, should  balance certain principles, those                                                               
principles being:                                                                                                               
                                                                                                                                
          (1) the terms should, in conjunction with other                                                                       
     factors  such as  cost reduction  of the  project, cost                                                                    
     overrun  risk  reduction   of  the  project,  increased                                                                    
     fiscal  certainty,  and successful  marketing,  improve                                                                    
     the competitiveness  of the approved  qualified project                                                                    
     in  relation  to  other development  efforts  aimed  at                                                                    
     supplying the same market;                                                                                                 
          (2) the terms should accommodate the interests of                                                                     
     the  state, affected  municipalities,  and the  project                                                                    
     sponsors  under a  wide range  of economic  conditions,                                                                    
     potential    project    structures,    and    marketing                                                                    
     arrangements;                                                                                                              
          (3) the state's and affected municipalities'                                                                          
     combined  share of  the economic  rent of  the approved                                                                    
     qualified   project  under   the  contract   should  be                                                                    
     relatively  progressive;  that   is,  the  state's  and                                                                    
     affected municipalities'  combined annual share  of the                                                                    
     economic  rent   of  the  approved   qualified  project                                                                    
     generally should not increase  when there are decreases                                                                    
     in project  profitability, or  decrease when  there are                                                                    
     increases in project profitability;                                                                                        
          (4) the state's and affected municipalities'                                                                          
     combined  share of  the economic  rent of  the approved                                                                    
     qualified   project  under   the  contract   should  be                                                                    
     relatively  lower  in the  earlier  years  than in  the                                                                    
     later years of the approved qualified project;                                                                             
          (5) the terms should allow the project sponsors                                                                       
     to retain a share of  the economic rent of the approved                                                                    
     qualified project that is  sufficient to compensate the                                                                    
     sponsors   for  risks   under  a   range  of   economic                                                                    
     circumstances;                                                                                                             
          (6) the terms should provide the state and                                                                            
     affected  municipalities with  a  significant share  of                                                                    
     the economic  rent of  the approved  qualified project,                                                                    
     when  discounted  to  present  value,  under  favorable                                                                    
     price and cost conditions;                                                                                                 
          (7) the method for calculating the periodic                                                                           
     payment  in lieu  of certain  taxes under  the contract                                                                    
     should be clear and unambiguous; and                                                                                       
          (8) while cost calculations for the approved                                                                          
     qualified project  under the  contract should  be based                                                                    
     on  amounts  that  closely  approximate  actual  costs,                                                                    
     agreed-upon  formulas  reflecting  reasonable  economic                                                                    
     assumptions  should  be  used if  possible  to  promote                                                                    
     administrative certainty and efficiency.                                                                                   
                                                                                                                                
MR.  JARDELL  also  pointed  out  that the  ASGF  Contract  is  a                                                               
"fiscal"  contract.    He  assured  the  committee  that  if  the                                                               
administration cannot make  a best interest finding,  it will not                                                               
go forward with the ASGF Contract.                                                                                              
                                                                                                                                
REPRESENTATIVE  LeDOUX made  a motion  to amend  Amendment 4,  to                                                               
delete everything but the change proposed  to page 3, line 25, of                                                               
HB 2004.                                                                                                                        
                                                                                                                                
REPRESENTATIVE GATTO  objected.  He  referred to a June  1, 2006,                                                               
memorandum  written  by  Dennis  Bailey,  Legislative  Legal  and                                                               
Research Services, and relayed that  Mr. Bailey has said that the                                                               
Alaska Supreme  Court has addressed  interpretation of  the "best                                                               
interest" findings and summarized it but  has not done so for the                                                               
term, "long-term  fiscal interests"  Representative  Gatto opined                                                               
that using  an undefined term  will complicate matters  more than                                                               
will using established terminology  already defined by the Alaska                                                               
Supreme Court.   He  reiterated his belief  that using  the term,                                                               
"best interests"  won't occasion drastic changes,  because a best                                                               
interest finding  will find that  the long-term  fiscal interests                                                               
are already met.                                                                                                                
                                                                                                                                
3:59:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   SAMUELS  expressed   favor  with   the  amendment   to                                                               
Amendment 4.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  expressed   disfavor  with  changing  the                                                               
standard retroactively, but opined  that the commissioner's final                                                               
determination  should  be a  best  interest  finding.   He  asked                                                               
whether the amendment to Amendment 4 will result in the later.                                                                  
                                                                                                                                
CO-CHAIR SAMUELS  and REPRESENTATIVE LeDOUX offered  their belief                                                               
that it would.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  LeDOUX  opined  that   the  Alaska  Stranded  Gas                                                               
Development  Act  should have  used  the  term, "best  interests"                                                               
throughout to  begin with.  However,  as long as a  best interest                                                               
finding is made  before the contract goes  forward, she remarked,                                                               
then she will be satisfied.                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether  a legal  challenge to  the                                                               
commissioner's finding would be to  the final finding, that being                                                               
a best interest finding.                                                                                                        
                                                                                                                                
JARDELL said it would.                                                                                                          
                                                                                                                                
A  roll call  vote was  taken.   Representatives Elkins,  LeDoux,                                                               
Olson, Seaton,  and Samuels  voted in favor  of the  amendment to                                                               
Amendment 4.   Representatives Gatto, Crawford,  and Ramras voted                                                               
against it.  Therefore, the  amendment to Amendment 4 was adopted                                                               
by a vote of 5-3.                                                                                                               
                                                                                                                                
CO-CHAIR  SAMUELS  asked whether  there  were  any objections  to                                                               
Amendment  4, as  amended.   There  being none,  Amendment 4,  as                                                               
amended, was adopted.                                                                                                           
                                                                                                                                
4:03:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  made  a  motion  to  adopt  Amendment  5,                                                               
labeled 24-GH2046\A.4, Bailey, 6/3/06, which read:                                                                              
                                                                                                                                
     Page 3, line 27, through page 4, line 2:                                                                                   
          Delete all material and insert:                                                                                       
          "(b)  A contract developed under this chapter may                                                                     
     not include a waiver of the state's sovereign or other                                                                     
     immunity."                                                                                                                 
                                                                                                                                
     Page 10, line 14:                                                                                                          
          Delete "and (b)"                                                                                                  
                                                                                                                                
CO-CHAIR SAMUELS objected for the purpose of discussion.                                                                        
                                                                                                                                
REPRESENTATIVE  SEATON made  a motion  to amend  Amendment 5,  to                                                               
delete  the words,  "or other"  from the  language that  would be                                                               
inserted.  There being no objection, Amendment 5 was amended.                                                                   
                                                                                                                                
REPRESENTATIVE  SEATON offered  his belief  that the  legislature                                                               
did not  intend, in the  Alaska Stranded Gas Development  Act, to                                                               
waive the  state's sovereign immunity,  and opined that  doing so                                                               
would put the state in a very bad position.                                                                                     
                                                                                                                                
REPRESENTATIVE  LeDOUX noted,  though,  that if  Amendment 5,  as                                                               
amended,  is adopted,  there  will be  no way  for  the state  to                                                               
settle  disputes, adding  her belief  that the  State waives  its                                                               
sovereign immunity  in just about  any commercial  transaction it                                                               
engages in.                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  pointed out  that nothing in  Amendment 5,                                                               
as amended, says that the  State cannot waive sovereign immunity;                                                               
instead,  it says  that  the  contract terms  may  not include  a                                                               
waiver of the state's sovereign  immunity.  He offered his belief                                                               
that the State can always waive its immunity.                                                                                   
                                                                                                                                
4:05:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LeDOUX  argued   that  generally  speaking,  when                                                               
people enter  into a contract with  the State, they want  to know                                                               
in advance  whether they will be  able to bring suit  against the                                                               
state; they don't want  the State to just be able  to decide on a                                                               
case-by-case basis  whether it will waive  its sovereign immunity                                                               
in one  particular situation but not  in another.  If  the latter                                                               
were  the  case, the  State  could  simply  decide not  to  waive                                                               
sovereign immunity  in cases it  thinks it might lose.   Although                                                               
not  a  proponent  of  the  ASGF  Contract's  "fiscal  certainty"                                                               
provisions, she  remarked, she  does believe  that parties  to an                                                               
agreement should be given certainty  with regard to being able to                                                               
seek remedy through the court system.                                                                                           
                                                                                                                                
REPRESENTATIVE SEATON  expressed disbelief that the  State waives                                                               
its sovereign immunity  in every contract, for  example, that the                                                               
Department of Transportation &  Public Facilities (DOT&PF) enters                                                               
into.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  LeDOUX posited  that  such a  waiver is  probably                                                               
included as boilerplate language in DOT&PF contracts.                                                                           
                                                                                                                                
CO-CHAIR  SAMUELS questioned  whether, if  a provision  requiring                                                               
the State to waive its sovereign  immunity is not included in the                                                               
ASGF Contract, could  the State then simply  make a determination                                                               
on  a  case-by-case  basis  -  every  time  a  dispute  arises  -                                                               
regarding whether it will waive sovereign immunity.                                                                             
                                                                                                                                
REPRESENTATIVE  SEATON  offered  his belief  that  typically  the                                                               
State allows itself to be sued.                                                                                                 
                                                                                                                                
MR.  JARDELL   said  he  can't  provide   information  on  DOT&PF                                                               
contracts at  this time, but  offered his understanding  that the                                                               
State   does  waive   sovereign  immunity   in  every   contract;                                                               
furthermore,  the State  is routinely  sued  "under contract,  in                                                               
quasi-contract, and torts - otherwise,  no one would enter into a                                                               
contract with  us."  He  indicated that Amendment 5,  as amended,                                                               
causes some concern on a  policy level because sovereign immunity                                                               
needs to be waived in order for  the State to be sued or to enter                                                               
into arbitration.  He offered his  belief that lack of an express                                                               
waiver of sovereign immunity will  prevent the project from going                                                               
forward; furthermore, the  State wants to be able  to utilize the                                                               
tool of arbitration  - and such would not be  possible without an                                                               
express waiver -  because the potential benefits of  doing so far                                                               
outweigh   any  potential   problems,  particularly   given  that                                                               
arbitration,  which is  utilized in  commercial transactions  all                                                               
over  the world,  is a  quick and  efficient method  of resolving                                                               
disputes.                                                                                                                       
                                                                                                                                
MR. JARDELL also  pointed out that the language  currently in the                                                               
bill - along  with Amendment 1, as amended -  merely provides the                                                               
authority  for  the  negotiators  to  consider  inserting  waiver                                                               
language in  the ASGF Contract,  and that the  administration did                                                               
not  feel that  providing  such authority  was [an  unreasonable]                                                               
concession given  the focus on  negotiating for terms  that would                                                               
result in higher  revenue streams for the state.   In response to                                                               
a question, he offered his  understanding that sovereign immunity                                                               
is usually waived via statutory language.                                                                                       
                                                                                                                                
MR. DONOHUE  explained that there  is a  constitutional provision                                                               
which  says that  the legislature  shall establish  procedure for                                                               
suits against  the state; thus  the notion of  sovereign immunity                                                               
is  totally a  legislative policy  decision.   Certain causes  of                                                               
action are allowed  to be brought against the state  on a regular                                                               
basis, and certain causes of action are precluded.                                                                              
                                                                                                                                
MR.  JARDELL  posited  that  the language  [of  Amendment  5,  as                                                               
amended] could  be read to say  that the state may  not waive its                                                               
sovereign  immunity in  the  ASGF Contract,  and  thus the  state                                                               
would be forced to assert sovereign immunity.                                                                                   
                                                                                                                                
4:16:49 PM                                                                                                                    
                                                                                                                                
A  roll call  vote  was taken.    Representatives Gatto,  Seaton,                                                               
Crawford, and Kapsner voted in  favor of Amendment 5, as amended.                                                               
Representatives Elkins, LeDoux, Olson,  Ramras, and Samuels voted                                                               
against  it.   Therefore, Amendment  5, as  amended, failed  by a                                                               
vote of 4-5.                                                                                                                    
                                                                                                                                
[Following  was  a  brief discussion  regarding  which  amendment                                                               
would be taken up as Amendment 6.]                                                                                              
                                                                                                                                
The committee took an at-ease from 4:18 p.m. to 4:23 p.m.                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON  made  a  motion  to  adopt  Amendment  6,                                                               
labeled 24-GH2046\A.5, Wayne, 6/3/06, which read:                                                                               
                                                                                                                                
     Page 3, line 26:                                                                                                           
          Delete "a new subsection"                                                                                             
          Insert "new subsections"                                                                                              
                                                                                                                                
     Page 4, following line 2:                                                                                                  
     Insert a new subsection to read:                                                                                           
          "(c)  If the commissioner approves an application                                                                     
     and  proposed  project   plan  under  AS 43.82.140  and                                                                    
     develops a contract that does  not by its terms require                                                                    
     a party to complete the  project named in the contract,                                                                    
     the contract must, at a minimum, contain                                                                                   
               (1)  a list of each and every specific act a                                                                     
     party  to the  contract  must  accomplish before  fully                                                                    
     committing to  completion of the  project named  in the                                                                    
     contract,  a description  of each  act, and  a timeline                                                                    
     from start to finish that  the party shall follow while                                                                    
     accomplishing each act;                                                                                                    
               (2)  a completion date, which may only be                                                                        
     changed with  the commissioner's consent, for  each act                                                                    
     listed as required by (1) of this subsection;                                                                              
               (3)  a commit-in-full date by which a party                                                                      
     must fully  commit to completion  of the  project named                                                                    
     in the contract; and                                                                                                       
               (4)  language allowing the commissioner to                                                                       
     terminate a  contract with  a party  if the  party does                                                                    
     not  complete an  act by  its corresponding  completion                                                                    
     date or fully commit by the commit-in-full date."                                                                          
                                                                                                                                
CO-CHAIR SAMUELS objected for the purpose of discussion.                                                                        
                                                                                                                                
REPRESENTATIVE  SEATON  explained   that  Amendment  6  addresses                                                               
specific  work  commitments   as  outlined  on  page   5  of  the                                                               
aforementioned May  29 memorandum  by Barnes &  Cascio, LLP.   He                                                               
opined that the  state needs a set of work  commitments that will                                                               
lead to  project sanction.   However,  given that  the memorandum                                                               
pertains   to   preliminary  documents,   Representative   Seaton                                                               
remarked, he is  going to withdraw Amendment 6 at  this time, and                                                               
allow committee  members and the administration  time to consider                                                               
this  issue  further so  as  to  be  able  to address  it  later.                                                               
[Amendment 6 was withdrawn.]                                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS relayed that Mr.  Barnes is continuing to review                                                               
this issue.                                                                                                                     
                                                                                                                                
4:25:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON made  a motion to adopt  Amendment 7, which                                                               
read [original punctuation provided]:                                                                                           
                                                                                                                                
     Page 7 subsection (d), Delete all material                                                                                 
                                                                                                                                
     Insert:   "A  collateral  agreement  negotiated by  the                                                                    
     commissioner  necessary to  implement  a contract  that                                                                    
     has  been   authorized  by  the  legislature   must  be                                                                    
     approved by the legislature."                                                                                              
                                                                                                                                
CO-CHAIR SAMUELS objected.                                                                                                      
                                                                                                                                
The committee took two short  at-eases between 4:26 p.m. and 4:27                                                               
p.m.                                                                                                                            
                                                                                                                                
CO-CHAIR SAMUELS announced that Amendment 7 has been withdrawn.                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  [made a  motion  to  adopt] Amendment  8,                                                               
which read [original punctuation provided]:                                                                                     
                                                                                                                                
     Page 4 line 23 after commissioner                                                                                          
      Insert "except for a tax imposed by a voter approved                                                                      
     initiative."                                                                                                               
                                                                                                                                
CO-CHAIR RAMRAS objected.                                                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON indicated  that Amendment  8 will  prevent                                                               
the  administration from  repealing  a voter-approved  initiative                                                               
regarding a reserves tax via language in the ASGF Contract.                                                                     
                                                                                                                                
4:29:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  said he supports  [the goal of] Amendment  8 but                                                               
would prefer to simply delete proposed AS 43.82.210(a)(8).                                                                      
                                                                                                                                
REPRESENTATIVE SEATON pointed out  that the language currently in                                                               
proposed  AS  43.82.210(a)(8)  is  part of  the  existing  Alaska                                                               
Stranded  Gas Development  Act, and  surmised that  there may  be                                                               
circumstances in which the issue of  other taxes might need to be                                                               
addressed in future contracts.                                                                                                  
                                                                                                                                
CO-CHAIR RAMRAS removed his objection.                                                                                          
                                                                                                                                
CO-CHAIR SAMUELS objected.                                                                                                      
                                                                                                                                
REPRESENTATIVE  CRAWFORD said  he  agrees with  [the concept  of]                                                               
Amendment 8.  He added:                                                                                                         
                                                                                                                                
     I think  that the  reserves tax is  one of  the reasons                                                                    
     why we're  here and  why we're actually  debating this;                                                                    
     without the reserves tax impetus  I think that we would                                                                    
     have rocked  on for  a number more  years with  our gas                                                                    
     languishing in the ground in Prudhoe Bay.                                                                                  
                                                                                                                                
CO-CHAIR SAMUELS opined  that a reserves tax will  have an impact                                                               
on  the economics  of the  project, and  that if  [the underlying                                                               
issue] isn't addressed  in the final contract,  then the contract                                                               
won't  be   approved  by  the   legislature.    He   offered  his                                                               
understanding  that indemnification  won't  nullify the  reserves                                                               
tax, rather  it will merely  provide for a rebate,  and suggested                                                               
that  one solution  would be  for the  administration to  make it                                                               
easier for the state to get out of the contract.                                                                                
                                                                                                                                
REPRESENTATIVE SEATON, in response  to a question, indicated that                                                               
Amendment  8 is  intended to  address  the issue  of whether  the                                                               
administration  should be  allowed to  negotiate a  contract that                                                               
will  result  in  nullifying a  voter-approved  initiative.    He                                                               
offered his  understanding that even  though the  legislature has                                                               
to  wait  two years,  such  an  initiative  could be  changed  or                                                               
repealed  by  the legislature  long  before  project sanction  is                                                               
obtained.                                                                                                                       
                                                                                                                                
4:36:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  suggested that  [the reserves  tax] will                                                               
not  add  any  costs  to  the project  or  change  the  project's                                                               
economics;  rather, it  simply  acts as  a  penalty if  producers                                                               
don't sell the gas  or contract to transport it.   As long as the                                                               
producers  do  those  things  in  a timely  manner,  the  tax  is                                                               
refunded to them.                                                                                                               
                                                                                                                                
REPRESENTATIVE   GATTO  questioned   whether  the   reserves  tax                                                               
initiative could affect a contract that's already been approved.                                                                
                                                                                                                                
MR. JARDELL posited  that the administration thinks  it is likely                                                               
to  have  a contract  prior  to  the  vote  on the  reserves  tax                                                               
initiative taking place.                                                                                                        
                                                                                                                                
MR. DONOHUE  said that assuming  the fiscal  certainty provisions                                                               
of the ASGF  Contract are found to be  constitutional, they would                                                               
in effect  indemnify the producers  from a reserves  tax, whether                                                               
such  a  tax  comes  about  via the  initiative  process  or  via                                                               
statutory changes.                                                                                                              
                                                                                                                                
CO-CHAIR SAMUELS offered his belief,  though, that the tax system                                                               
proposed by  the initiative  would be  on gas  that has  not been                                                               
produced.                                                                                                                       
                                                                                                                                
REPRESENTATIVE GATTO  asked whether a voter  initiative requiring                                                               
Alaska hire could affect the ASGF Contract.                                                                                     
                                                                                                                                
MR.  DONOHUE suggested  that that  issue raises  other state  and                                                               
federal constitutional questions.                                                                                               
                                                                                                                                
REPRESENTATIVE GATTO  said he is  merely questioning  whether any                                                               
voter initiative could affect the ASGF Contract.                                                                                
                                                                                                                                
MR. DONOHUE offered his belief  that federal contract law and the                                                               
ASGF Contract's  provisions allowing  for fiscal  certainty would                                                               
prohibit  an initiative  from having  any affect  on "contractual                                                               
rights under the agreement."                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS said  his concern  is  that the  indemnification                                                               
would begin  with the signing  of the  contract and not  with the                                                               
language adopted  via Amendment 3,  as amended, and  therefore he                                                               
will be supporting the adoption of Amendment 8.                                                                                 
                                                                                                                                
CO-CHAIR  SAMUELS raised  the  issue of  net  present value,  and                                                               
opined that the "front-end money ... takes the economics away."                                                                 
                                                                                                                                
CO-CHAIR RAMRAS said he rejects  the argument that a reserves tax                                                               
has  anything to  do with  the  construction of  a gas  pipeline;                                                               
rather,  they are  separate  and  apart, and  he  objects to  the                                                               
formula that "throws it into  the net present value computation."                                                               
He   indicated  that   he  doesn't   support  the   reserves  tax                                                               
initiative, but supports  protecting the rights of  the people to                                                               
interpret issues  differently, adding  that he  did not  become a                                                               
legislator in order to thwart the will of the people.                                                                           
                                                                                                                                
CO-CHAIR SAMUELS  characterized [the reserves tax  initiative] as                                                               
premature.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  CRAWFORD  mentioned  that  if  the  reserves  tax                                                               
initiative passes, he intends to  introduce legislation that will                                                               
"plow all that  money into the project so that  we don't harm the                                                               
net present value" of the tax amount.                                                                                           
                                                                                                                                
A  roll call  vote  was taken.    Representatives Gatto,  LeDoux,                                                               
Seaton,  Crawford,   Kapsner,  and  Ramras  voted   in  favor  of                                                               
Amendment 8.   Representatives Elkins,  Olson, and  Samuels voted                                                               
against it.   Therefore, Amendment 8 was adopted by  a vote of 6-                                                               
3.                                                                                                                              
                                                                                                                                
4:46:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  made a motion  to adopt Conceptual  Amendment 9,                                                               
which read [original punctuation provided]:                                                                                     
                                                                                                                                
     Page 4, Lines 17-18                                                                                                        
     Delete all of (5)                                                                                                          
     Page 4, Lines 22-23                                                                                                        
     Delete all of (8)                                                                                                          
                                                                                                                                
CO-CHAIR SAMUELS objected.                                                                                                      
                                                                                                                                
CO-CHAIR  RAMRAS noted  that Conceptual  Amendment 9  will affect                                                               
the language just adopted via Amendment  8.  He said that much of                                                               
the  TAPS goes  through Fairbanks  North Star  Borough, which  he                                                               
said derives  a lot of  fiscal stability from the  taxes assessed                                                               
on  the   TAPS;  therefore,   because  he   does  not   want  the                                                               
commissioner to  be able to  affect the assessed value  of either                                                               
the  TAPS  or a  potential  gas  pipeline,  he is  proposing  the                                                               
deletion of proposed AS 43.82.210(a)(5) and (8).                                                                                
                                                                                                                                
CO-CHAIR  SAMUELS offered  that the  entire point  of the  Alaska                                                               
Stranded Gas Development  Act, however, was to  stabilize all the                                                               
taxes, including  the property taxes; therefore,  removing one of                                                               
the taxes  referred to in  proposed AS  43.82.210(a)(1)-(8) could                                                               
result in  property taxes [increasing dramatically]  once the gas                                                               
pipeline is built.                                                                                                              
                                                                                                                                
REPRESENTATIVE LeDOUX  questioned why  the proposal is  to delete                                                               
just paragraphs  (5) and  (8) and not  also paragraphs  (4), (6),                                                               
and  (7), since  that same  analysis  could be  applied to  those                                                               
paragraphs as well.                                                                                                             
                                                                                                                                
CO-CHAIR RAMRAS  acknowledged that he was  simply being sensitive                                                               
to the recent assessment challenge  on the TAPS, and is concerned                                                               
about the subject matter just covered in Amendment 8.                                                                           
                                                                                                                                
REPRESENTATIVE SEATON noted that  proposed AS 43.82.210(a) speaks                                                               
to  the issue  of including  terms regarding  PILT, allowing  the                                                               
taxes included  therein to  be considered for  PILT, and  he does                                                               
not  think   this  provision  will  diminish   the  tax  amounts;                                                               
therefore,  he doesn't  think  it will  be  beneficial to  delete                                                               
paragraphs (5) and (8) from proposed AS 43.82.210(a).                                                                           
                                                                                                                                
A roll  call vote was  taken.  Representatives  Elkins, Crawford,                                                               
Kapsner, and  Ramras voted  in favor  of Conceptual  Amendment 9.                                                               
Representatives Gatto,  LeDoux, Olson, Seaton, and  Samuels voted                                                               
against it.   Therefore, Conceptual Amendment 9 failed  by a vote                                                               
of 4-5.                                                                                                                         
                                                                                                                                
4:52:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS made  a motion to adopt  Conceptual Amendment 10,                                                               
which read [original punctuation provided]:                                                                                     
                                                                                                                                
     Page 6, line 20-Page 7, line 19                                                                                            
                                                                                                                                
     Delete all language                                                                                                        
                                                                                                                                
     Insert                                                                                                                     
                                                                                                                                
          Sec. 11.  AS 43.82 is amended by adding a new                                                                         
     section to read:                                                                                                           
                                                                                                                                
          Sec. 43.82.437.  Collateral Agreements.  (a)  The                                                                     
     commissioner  of revenue  with the  concurrence of  the                                                                    
     commissioner   of  natural   resources  may   negotiate                                                                    
     collateral  agreements that  are required  to implement                                                                    
     the  state's acquisition  of an  ownership interest  in                                                                    
     the project  and each project  entity to be  created to                                                                
     own and  operate any  part of the  project that  is the                                                                
     subject  of a  proposed contract  developed under  this                                                                    
     chapter.   Each  such collateral  agreement shall  be a                                                                
     condition   subsequent   to   the   proposed   contract                                                                
     developed  under  this  chapter, shall  be  subject  to                                                                
     review   and   authorization    to   execute   by   the                                                                
     legislature, and  upon approval may be  entered into by                                                                
     the public corporation  as provided in (b)  below.  The                                                                
     authority of  the commissioner of revenue  to negotiate                                                                    
     collateral  agreements on  behalf of  the state  lapses                                                                    
     180  days   after  the  effective   date  of   the  law                                                                    
     authorizing the contract  under AS 43.82.435, provided,                                                                
     that  with respect  to collateral  agreements submitted                                                                
     by  the  commissioner  of revenue  to  the  legislature                                                                
     within the 180 day time  limit, the time limit shall be                                                                
     extended  to  5  days   after  authorization  has  been                                                                
     approved.  Each project  entity collateral agreement to                                                                
     be negotiated  shall incorporate the  following minimum                                                                
     elements:                                                                                                              
                                                                                                                                
          (1)  if organized to do business in the state,                                                                    
     the  project  entity  shall   be  a  limited  liability                                                                
     company  organized  under  the Alaska  Revised  Limited                                                                
     Liability  Company  Act,   AS  Chapter  10.50  ("Alaska                                                                
     Act");                                                                                                                 
                                                                                                                                
          (2)  for project entities organized under the                                                                     
     Alaska Act,  the operating  agreement adopted  under AS                                                                
     10.50.095,   or  equivalent   governing  document   for                                                                
     project  entities organized  under other  jurisdictions                                                                
     ("Operating Agreement"),  shall include  the limitation                                                                
     that the state's obligation  to fund continuing capital                                                                
     and operating  obligations shall  be subject  to annual                                                                
     appropriation by  the legislature; and  provide further                                                                
     that the  state's failure to  appropriate a  capital or                                                                
     operating obligation  shall not be deemed  a default of                                                                
     the  state's obligation,  but shall  be deemed  only to                                                                
     reduce  the state's  ownership interest  on a  pro rata                                                                
     basis   based   upon   the   amount   of   the   failed                                                                
     appropriation relative to the  amount of the capital or                                                                
     operating obligations  funded by the  remaining project                                                                
     owners.                                                                                                                
                                                                                                                                
          (3)  the Operating Agreement shall provide that                                                                   
     the  state shall  not agree  to a  waiver of  sovereign                                                                
     immunity without  a reasonable  monetary limit  on such                                                                
     waiver under the facts  and circumstances; and provided                                                                
     further,  that  the  state   shall  not  indemnify,  or                                                                
     otherwise hold  harmless any person or  entity that has                                                                
     been  adjudged   in  a  judicial,   administrative,  or                                                                
     alternative dispute resolution  proceeding to be liable                                                                
     for negligence or misconduct in  the performance of the                                                                
     person's or  entity's duty or has  been adjudged guilty                                                                
     of a  crime or had such  criminal adjudication withheld                                                                
     subject to  probationary terms; provided  further, that                                                                
     the state  may not eliminate claims  for actual damages                                                                
     incurred  by  the  state, and  may  not  eliminate  the                                                                
     equitable  rights  to  seek  specific  performance  and                                                                
     injunctive  relief;  and   provided  further  that  the                                                                
     rights  and  limitations  provided in  this  subsection                                                                
     shall  apply to  collateral  agreements  to be  entered                                                                
     into under AS 43.82.437.                                                                                               
                                                                                                                                
          (4)  the Operating Agreement shall provide that                                                                   
     in the event of a  dispute between or among the members                                                                
     of the entity,  a subsidiary entity, an  affiliate of a                                                                
     member, a  member representative, and any  other person                                                                
     or  legal entity  that has  a  membership or  ownership                                                                
     interest  in  an  owner entity  of  the  project,  such                                                                
     dispute  shall be  subject  to  the dispute  resolution                                                                
     terms  and  procedures set  forth  in  the contract  as                                                                
     approved by  the legislature pursuant to  AS 43.82.435.                                                                
     The  term  "dispute"  shall  mean  a  dispute,  matter,                                                                
     controversy or claim arising out  of or relating to any                                                                
     owner entity of the  project, to any ownership interest                                                                
     in the project,  to any agreement between  or among the                                                                
     members or  owners of any  owner entity of  the project                                                                
     arising out of or relating  to such owner entity of the                                                                
     project,   or   to   the  operation,   management,   or                                                                
     implementation   of   the    project,   including   its                                                                
     interpretation,        construction,       performance,                                                                
     enforcement, privileges,  rights or obligations.   Such                                                                
     dispute resolution  terms shall  incorporate equivalent                                                                
     presumptions  and burdens  of  proof as  set forth  for                                                                
     civil trials  in Rule 301,  Presumptions in  General in                                                                
     Civil   Actions   and   Proceedings,  and   Rule   302,                                                                
     Applicability  of  Federal  Law in  Civil  Actions  and                                                                
     Proceedings, Alaska Rules of Evidence as amended.                                                                      
                                                                                                                                
          (5)  the Operating Agreement shall provide that                                                                   
     the managing  members and member representatives  owe a                                                                
     duty  to act  in the  best interest  of the  entity and                                                                
     perform their duties in good  faith towards the goal of                                                                
     implementation of the project.                                                                                         
                                                                                                                                
          (6)  the Operating Agreement shall provide that                                                                   
     the  entity  shall  not effect  a  material  change  or                                                                
     amendment  to the  Qualified Project  Plan without  the                                                                
     review and authorization of the legislature.                                                                           
                                                                                                                                
          (7)  the Operating Agreement shall provide that                                                                   
     the  members of  the governing  body of  any subsidiary                                                                
     entity organized by the entity  shall be the members of                                                                
     the  governing board  of the  entity, unless  otherwise                                                                
     authorized by the legislature,                                                                                         
                                                                                                                                
          (8)  the Operating Agreement shall provide the                                                                    
     state the  unilateral right  to initiate  expansions of                                                                
     the project, provided the state  funds or obtains third                                                                
     party  funding from  a credit  worth customer  for each                                                                
     such expansion  or extension,  and shall  include terms                                                                
     for voluntary expansion, including:                                                                                    
               A) holding periodic (every 3-5 years)                                                                        
     binding or  non-binding open  seasons to  assess market                                                                
     demand for expansion;                                                                                                  
               B) commit to satisfy all creditworthy                                                                        
     demands   for   capacity    expansion   in   reasonable                                                                
     engineering increments;                                                                                                
               C)   commit    expansion   for   creditworthy                                                                
     shippers    in    less-than   reasonable    engineering                                                                
     increments when  such shippers commit  to contributions                                                                
     in aid  of construction sufficient to  keep the project                                                                
     entity whole, including authorized return; and                                                                         
               D) commit the project entity to propose and                                                                  
     defend   the  use   of   rolled-in   pricing  for   all                                                                
     expansions.                                                                                                            
                                                                                                                                
          (9)  the Operating Agreement shall provide that                                                                   
     in  the event  the  entity elects  to  contract with  a                                                                
     vendor to operate the entity  or implement the project,                                                                
     such  vendor  shall  be  independent   of  and  not  an                                                                
     affiliate of the members of the entity.                                                                                
                                                                                                                                
          (10)  the Operating Agreement shall provide that                                                                  
     state  member shall  have the  right to  participate in                                                                
     all meetings of  the governing board of  the entity and                                                                
     vote  on all  decisions of  the entity,  including, but                                                                
     not  limited to,  decisions  affecting tax  allocations                                                                
     between or among the taxpaying members of the entity.                                                                  
                                                                                                                                
          (11)  the Operating Agreement shall provide that                                                                  
     the state  member shall  have the  right to  review all                                                                
     books  and records  of the  entity, including,  but not                                                                
     limited to,  all contracts, and  to audit  the finances                                                                
     of the entity at any time and from time to time.                                                                       
                                                                                                                                
          (12)  the Operating Agreement shall provide that                                                                  
     upon  termination, liquidation  or  dissolution of  the                                                                
     entity, the state  shall have a right  of first refusal                                                                
     and option to  acquire all of the assets  of the entity                                                                
     at the then fair value of the assets.                                                                                  
                                                                                                                                
          (13)  the Operating Agreement shall provide that                                                                  
     in the event  a member seeks to transfer  or divest its                                                                
     ownership interest in the entity,  the state shall have                                                                
     a  right of  first refusal  and option  to acquire  the                                                                
     member's ownership  interest at the then  fair value of                                                                
     the interest.                                                                                                          
                                                                                                                                
          (14)  the Operating Agreement shall provide that                                                                  
     in  the event  that  the entity  seeks  to transfer  or                                                                
     divest  any or  all of  the project  assets, the  state                                                                
     shall  have a  right  of first  refusal  and option  to                                                                
     acquire such project  assets at the then  fair value of                                                                
     such project assets.                                                                                                   
                                                                                                                                
          (15)  the Operating Agreement shall include a                                                                     
     right of  first refusal and  option by which  the state                                                                
     may acquire  all or any  part of the project  assets in                                                                
     the event that Federal  Energy Regulatory Commission of                                                                
     the  United States  Department  of  Energy, the  United                                                                
     States  Department   of  Justice,  the   Federal  Trade                                                                
     Commission,  or  other   applicable  federal  or  state                                                                
     agency  or   adjudicatory  body  orders  one   or  more                                                                
     qualified sponsor  or the  qualified sponsor  group, or                                                                
     their  affiliates,  to  divest  any  or  all  ownership                                                                
     interest  in the  project, at  the then  fair value  of                                                                
     such project assets.                                                                                                   
                                                                                                                                
          (16)  the Operating Agreement shall provide that                                                                  
     the  project  entity  shall utilize  project  financing                                                                
     supported by  federal guarantee instruments  as defined                                                                
     in the Alaska  Natural Gas Pipeline Act  to the maximum                                                                
     extent available  from the Federal Treasury,  and shall                                                                
     limit the  equity portion of project  capitalization to                                                                
     no more than 20% of total capital.                                                                                     
                                                                                                                                
     For  purposes  of  this section  (a),  the  term  "fair                                                                
     value" means  the value  as agreed  to by  the affected                                                                
     members or  as determined under the  dispute resolution                                                                
     process if  no agreement can be  reached, provided fair                                                                
     value shall  be determined based on  original cost less                                                                
     depreciation,  comparable  sales   or  income  approach                                                                
     valuation methodologies.                                                                                               
                                                                                                                                
CO-CHAIR SAMUELS objected.                                                                                                      
                                                                                                                                
CO-CHAIR  RAMRAS  explained  that  Conceptual  Amendment  10  was                                                               
"directly  lifted  from the  memorandum"  written  by Phillip  C.                                                               
Gildan of  the [consulting firm]  of Greenberg Traurig, LLP.   He                                                               
mentioned that  he has shared  with others his belief  that there                                                               
are too many ambiguities in the  contract and with regard to some                                                               
of the as yet  unformed entities such as the ANGPC  or any of the                                                               
[wholly owned  subsidiary entities ("Ancillary LLCs")  that would                                                               
be  formed for  the purpose  of owning,  financing, or  operating                                                               
portions  of the  project].   Furthermore, the  ANGPC legislation                                                               
proposes that the ANGPC shall  be incorporated under Delaware LLC                                                               
law, and he  opined that it would be helpful  to use Alaska's LLC                                                               
law, given the adoption of Amendment  1, as amended, and the fact                                                               
that  it will  be Alaska's  Department  of Law  that defends  the                                                               
state.                                                                                                                          
                                                                                                                                
4:56:08 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS relayed that Conceptual  Amendment 10 proposes to                                                               
add a new  AS 43.82.437, and that paragraph (1)  will require any                                                               
entity organized  to do business in  the state of Alaska  to be a                                                               
limited liability  company (LLC)  established under  Alaska's LLC                                                               
law.   This  provision, he  opined, will  reduce ambiguities  and                                                               
give the administration firm guidance.                                                                                          
                                                                                                                                
CO-CHAIR SAMUELS questioned  whether incorporating under Alaska's                                                               
LLC laws could result in higher costs and tariffs.                                                                              
                                                                                                                                
CO-CHAIR  RAMRAS  acknowledged  that  concern.   He  went  on  to                                                               
explain that  paragraph (2) requires that  any entities organized                                                               
under Alaska's  LLC laws  shall include  the limitation  that the                                                               
state's  obligation  to  fund continuing  capital  and  operating                                                               
obligations  shall  be subject  to  annual  appropriation by  the                                                               
legislature,   and  provides   that   the   state's  failure   to                                                               
appropriate such an  obligation shall not be deemed  a default of                                                               
the  state's  obligation but  shall  instead  only be  deemed  to                                                               
reduce the state's  ownership interest on a pro  rata basis based                                                               
upon  the amount  of  the failed  appropriation  relative to  the                                                               
amount  of the  capital or  operating obligations  funded by  the                                                               
remaining project owners.  He  suggested that this provision will                                                               
address the issue of possible cost overruns.                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  offered that [Conceptual Amendment  10] is meant                                                               
to strengthen  the states position, increase  the state's accrued                                                               
rights,  and   bring  in  groups   such  as   Anadarko  Petroleum                                                               
Corporation,  "Shell,  Chevron," and  "some  of  the other  small                                                               
players."   Under paragraph (2),  he posited, should  the project                                                               
cost more than is currently  anticipated, the state will have the                                                               
right to  simply reduce its  pro rata share of  ownership without                                                               
finding itself  in default.  In  response to a question,  he said                                                               
he does not  know what effect this provision will  have on tariff                                                               
rates.                                                                                                                          
                                                                                                                                
CO-CHAIR  SAMUELS suggested  that  HB 2003  would  be the  better                                                               
vehicle   for  Conceptual   Amendment   10   because  that   bill                                                               
specifically  addresses the  issues  of the  ANGPC and  Ancillary                                                               
LLCs, and  ownership interest in  the project.   He characterized                                                               
Conceptual Amendment  10 as far  too complex to be  considered in                                                               
the discussion of HB 2004.                                                                                                      
                                                                                                                                
5:03:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS disagreed,  and  pointed out  that  many of  the                                                               
provisions of  Conceptual Amendment 10 are  relevant and specific                                                               
to HB 2004.   He acknowledged, however, that members  may care to                                                               
offer amendments to Conceptual Amendment  10 to strike particular                                                               
paragraphs if it  is felt that those  paragraphs aren't relevant.                                                               
He then referred to paragraph (3),  and explained that it in part                                                               
limits  the  waiver  of sovereign  immunity.    He  acknowledged,                                                               
however, that  he doesn't yet  understand paragraphs (3)  and (4)                                                               
well, since he'd only just  received this language yesterday; one                                                               
solution  would be  to allow  more  time to  research the  points                                                               
raised  by Conceptual  Amendment 10,  though he  himself supports                                                               
moving the bill along as soon as possible.                                                                                      
                                                                                                                                
REPRESENTATIVE  LeDOUX   observed  that  the  first   portion  of                                                               
paragraph  (3)  is similar  to  Amendment  5, as  amended,  which                                                               
failed  to be  adopted,  and  so a  similar  discussion would  be                                                               
applicable.                                                                                                                     
                                                                                                                                
CO-CHAIR  RAMRAS  indicated  that  he would  be  amenable  to  an                                                               
amendment to delete  paragraph (3), and perhaps  paragraph (4) as                                                               
well, from Conceptual Amendment 10.   Referring to paragraph (5),                                                               
he explained that  it stipulates that any  operating agreement of                                                               
the  aforementioned  entities  shall provide  that  the  managing                                                               
members and member representatives owe a  duty to act in the best                                                               
interest of  the entity  and perform their  duties in  good faith                                                               
towards the  goal of implementation of  the project.  One  of the                                                               
concerns expressed  in the  aforementioned memorandum  from which                                                               
the language of  Conceptual Amendment 10 was derived  is that the                                                               
interests of the state's partners in  the Mainline LLC may not be                                                               
the same as the interests of the state.                                                                                         
                                                                                                                                
CO-CHAIR RAMRAS explained that paragraph  (6) stipulates that any                                                               
operating  agreement  shall provide  that  the  entity shall  not                                                               
effect a material  change or amendment to  the "Qualified Project                                                               
Plan"   without  legislative   review  and   authorization;  this                                                               
provision  empowers the  legislature to  participate in  proposed                                                               
changes once  a qualified  project plan  is "on  the table."   He                                                               
mentioned  that  paragraph  (7)  stipulates  that  any  operating                                                               
agreement shall  provide that the  members of any  Ancillary LLCs                                                               
organized by an entity shall be  members of the governing body of                                                               
that entity unless  otherwise authorized by the  legislature.  In                                                               
response to  a question,  he acknowledged that  he does  not know                                                               
how current law addresses that issue.                                                                                           
                                                                                                                                
5:08:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  relayed that paragraph  (8) stipulates  that any                                                               
operating agreement shall provide  the state the unilateral right                                                               
to initiate expansions  of the project, provided  the state funds                                                               
or obtains  third party  funding from  a credit  worthy customer,                                                               
and  shall include  terms for  voluntary expansion  regarding the                                                               
issues outlined in subparagraphs (A)-(D).   He spoke of the speed                                                               
with  which HB  2004 is  moving, and  expressed a  preference for                                                               
providing  the administration  with  as many  tools as  possible,                                                               
even if such tools are later  abandoned as being unnecessary.  He                                                               
noted that  one of the  problems facing  those in the  Cook Inlet                                                               
area is that "the  gas in the pipe is full  until the year 2012,"                                                               
and yet  the contracts are in  place to maintain a  full pipe, so                                                               
there is no  opportunity for expansion and  thus little incentive                                                               
to find additional gas at this time.                                                                                            
                                                                                                                                
CO-CHAIR  RAMRAS indicated  that paragraph  (8) is  precisely the                                                               
protection the state  should offer all of  the smaller companies;                                                               
paragraph (8)  will require that the  state look at the  issue of                                                               
expanding pipe  capacity even if the  engineering doesn't warrant                                                               
it.   He  then read  subparagraphs (C)  and (D)  as proposed  via                                                               
Conceptual  Amendment  10,  and  relayed  that  subparagraph  (D)                                                               
addresses  the  cost   of  the  tariff.    He   again  said  that                                                               
[Conceptual Amendment 10]  focuses on what's best  for the state,                                                               
what's best  for exploration, and  what's best  for incentivizing                                                               
more discoveries.                                                                                                               
                                                                                                                                
CO-CHAIR RAMRAS explained that paragraph  (9) stipulates that any                                                               
operating  agreement shall  provide  that  contracted vendors  be                                                               
independent and not  an affiliate of members of  the entity; this                                                               
provision  will  protect the  state  from  its position  of  only                                                               
owning 20 percent interest in the  Mainline LLC - in other words,                                                               
being a  minority member of the  Mainline LLC.  In  response to a                                                               
question, he offered  his understanding that in  owning the TAPS,                                                               
the producers have  abused the state with regard  to revenue that                                                               
could  have  gone   to  the  state,  and   said  that  Conceptual                                                               
Amendment 10 does not address the  state's ability, as a minority                                                               
member, to exercise  veto power.  Paragraph (9), as  well as [the                                                               
rest of]  Conceptual Amendment  10, he  remarked, is  designed to                                                               
help protect the  state as a minority member of  the Mainline LLC                                                               
and Ancillary LLCs.                                                                                                             
                                                                                                                                
REPRESENTATIVE  LeDOUX  said  that  even  if  the  provisions  of                                                               
Conceptual Amendment 10  are really good ideas,  she is concerned                                                               
with the seeming lack of understanding of those provisions.                                                                     
                                                                                                                                
5:15:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SAMUELS said he agrees  with some of the provisions, but                                                               
doesn't know enough about most of  the provisions to vote on them                                                               
as a whole.   For example, paragraph (16) speaks  to the issue of                                                               
federal  loan guarantees,  but the  federal rules  have not  been                                                               
promulgated yet,  and so it's  not yet known whether  the parties                                                               
will  want  to use  them.    He again  noted  that  HB 2003  will                                                               
specifically   address   the    issues   raised   by   Conceptual                                                               
Amendment 10.                                                                                                                   
                                                                                                                                
CO-CHAIR RAMRAS suggested that they  simply delete the paragraphs                                                               
of Conceptual  Amendment 10 that  members have concerns  with and                                                               
hold HB  2004 over  for a  day so  that representatives  from the                                                               
consulting   firm  of   Greenberg  Traurig,   LLP,  can   provide                                                               
additional  testimony.   He  again offered  his  belief that  the                                                               
provisions of Conceptual Amendment 10 are relevant to HB 2004.                                                                  
                                                                                                                                
REPRESENTATIVE  CRAWFORD  expressed  favor  with  paragraph  (8),                                                               
characterizing it as fundamental to  the goal of getting Alaska's                                                               
gas  to  market.    He  indicated  a  preference  for  addressing                                                               
Conceptual Amendment 10 in relation to HB 2004.                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  opined that  HB 2003 does  not go  into as                                                               
much  detail as  Conceptual Amendment  10, and  also expressed  a                                                               
preference   for  addressing   it   in  relation   to  HB   2004,                                                               
particularly given  that HB 2004  already addresses the  issue of                                                               
collateral  agreements.    He also  expressed  a  preference  for                                                               
having the legislature authorize collateral agreements.                                                                         
                                                                                                                                
The committee took an at-ease from 5:20 p.m. to 5:29 p.m.                                                                       
                                                                                                                                
5:29:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  made a motion  to delete paragraphs (3)  and (4)                                                               
from  Conceptual  Amendment  10.     There  being  no  objection,                                                               
Conceptual Amendment 10 was amended.                                                                                            
                                                                                                                                
CO-CHAIR  RAMRAS explained  that paragraph  (11) stipulates  that                                                               
any  operating  agreement shall  provide  that  the state  member                                                               
shall have the right to  review all books, records, and contracts                                                               
of the  entity, and to  audit the finances  of the entity  at any                                                               
time.  Paragraph (12), he  relayed, stipulates that any operating                                                               
agreement shall  provide that  the state has  the right  of first                                                               
refusal  and option  to acquire  all  assets of  the entity  upon                                                               
termination,  liquidation, or  dissolution  of that  entity.   He                                                               
remarked:    "We   have  heard  at  length  ...   that  once  the                                                               
construction-risk  period is  over,  that the  producers may  not                                                               
elect to  hold on  to a  FERC-regulated 12  or 13  percent return                                                               
that doesn't rise to the return requirement.                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS explained  that paragraph  (13) stipulates  that                                                               
any operating  agreement shall provide similar  terms with regard                                                               
to  any  owner member  that  wishes  to  transfer or  divest  its                                                               
ownership interest  in the entity.   He mentioned that  the term,                                                               
"fair value"  as referred to  in paragraphs (12), (13),  and (14)                                                               
is  defined at  the end  of Conceptual  Amendment 10.   Paragraph                                                               
(14), he  relayed, stipulates that any  operating agreement shall                                                               
provide  similar  terms with  regard  to  any owner  member  that                                                               
wishes to transfer or divest  its project assets.  Paragraph (15)                                                               
stipulates  that any  operating agreement  shall provide  similar                                                               
terms with  regard to any owner  member that is ordered  - by the                                                               
FERC,  the   U.S.  Department  of  Justice,   the  Federal  Trade                                                               
Commission (FTC), or other applicable  federal or state agency or                                                               
adjudicatory body  - to  transfer or  divest its  project assets;                                                               
paragraph (15) addresses antitrust issues.                                                                                      
                                                                                                                                
CO-CHAIR RAMRAS  posited that anti-trust  issues at  the wellhead                                                               
could  result in  the project  being delayed,  adding, "We  don't                                                               
want to  build a  pipe that  only allows for  producer gas  to go                                                               
through it";  the whole notion  behind the PPT  [legislation] and                                                               
building  the  gas  pipeline  is  to "get  more  folks  up  there                                                               
developing,  investing, and  exploring  for gas."   He  explained                                                               
that  paragraph  (16)  stipulates that  any  operating  agreement                                                               
shall  provide  that the  project  entity  shall utilize  project                                                               
financing  supported  by  federal guarantee  instruments  to  the                                                               
maximum  extent  available  from   the  U.S.  Department  of  the                                                               
Treasury,  and   shall  limit  the  equity   portion  of  project                                                               
capitalization  to no  more  than 20  percent  of total  capital.                                                               
Regardless that  this provision may  make the project  cost more,                                                               
he  concluded,  he  is  more   comfortable  with  including  this                                                               
language than  he would  be with  leaving it out.   He  then read                                                               
Conceptual Amendment  10's definition of the  term, "fair value",                                                               
and characterized it as a pretty standard [definition].                                                                         
                                                                                                                                
CO-CHAIR  SAMUELS  offered  his   understanding  that  the  House                                                               
Judiciary  Standing Committee  has addressed  "a number  of these                                                               
subjects" via HB 2003.                                                                                                          
                                                                                                                                
A  roll call  vote  was taken.    Representatives Gatto,  Seaton,                                                               
Crawford,  Kapsner,  and  Ramras  voted in  favor  of  Conceptual                                                               
Amendment  10,  as  amended.    Representatives  Elkins,  LeDoux,                                                               
Olson,  and  Samuels voted  against  it.   Therefore,  Conceptual                                                               
Amendment 10, as amended, was adopted by a vote of 5-4.                                                                         
                                                                                                                                
5:35:06 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS moved  to report  HB  2004, as  amended, out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being no  objection,  CSHB 2004(RES)  was                                                               
reported from the House Resources Standing Committee.                                                                           
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 5:36 p.m.                                                                 

Document Name Date/Time Subjects