Legislature(2007 - 2008)BARNES 124

04/19/2007 01:00 PM RESOURCES


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01:06:17 PM Start
01:06:31 PM HB177
03:05:40 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 177 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 19, 2007                                                                                         
                           1:06 p.m.                                                                                            
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Carl Gatto, Co-Chair                                                                                             
Representative Craig Johnson, Co-Chair                                                                                          
Representative Vic Kohring                                                                                                      
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Max Gruenberg                                                                                                    
Representative Anna Fairclough                                                                                                  
Representative Mike Doogan                                                                                                      
Senator Lyda Green                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 177                                                                                                              
"An  Act   relating  to  the   Alaska  Gasline   Inducement  Act;                                                               
establishing   the  Alaska   Gasline   Inducement  Act   matching                                                               
contribution  fund; providing  for an  Alaska Gasline  Inducement                                                               
Act coordinator; making conforming  amendments; and providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 177                                                                                                                  
SHORT TITLE: NATURAL GAS PIPELINE PROJECT                                                                                       
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/05/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/07       (H)       O&G, RES, FIN                                                                                          
03/06/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/06/07       (H)       -- MEETING CANCELED --                                                                                 
03/08/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/08/07       (H)       -- MEETING CANCELED --                                                                                 
03/13/07       (H)       O&G AT 3:30 PM HOUSE FINANCE 519                                                                       
03/13/07       (H)       Heard & Held                                                                                           
03/13/07       (H)       MINUTE(O&G)                                                                                            
03/15/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/15/07       (H)       Heard & Held                                                                                           
03/15/07       (H)       MINUTE(O&G)                                                                                            
03/19/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/19/07       (H)       Heard & Held                                                                                           
03/19/07       (H)       MINUTE(O&G)                                                                                            
03/20/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/20/07       (H)       Heard & Held                                                                                           
03/20/07       (H)       MINUTE(O&G)                                                                                            
03/21/07       (H)       O&G AT 5:30 PM SENATE FINANCE 532                                                                      
03/21/07       (H)       Heard & Held                                                                                           
03/21/07       (H)       MINUTE(O&G)                                                                                            
03/22/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/22/07       (H)       Heard & Held                                                                                           
03/22/07       (H)       MINUTE(O&G)                                                                                            
03/23/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/23/07       (H)       Heard & Held                                                                                           
03/23/07       (H)       MINUTE(O&G)                                                                                            
03/24/07       (H)       O&G AT 1:00 PM SENATE FINANCE 532                                                                      
03/24/07       (H)       -- Public Testimony --                                                                                 
03/26/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/26/07       (H)       Heard & Held                                                                                           
03/26/07       (H)       MINUTE(O&G)                                                                                            
03/27/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/28/07       (H)       O&G AT 7:30 AM CAPITOL 106                                                                             
03/28/07       (H)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/28/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/28/07       (H)       Heard & Held                                                                                           
03/28/07       (H)       MINUTE(O&G)                                                                                            
03/29/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
03/29/07       (H)       Heard & Held                                                                                           
03/29/07       (H)       MINUTE(O&G)                                                                                            
03/30/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
03/30/07       (H)       Heard & Held                                                                                           
03/30/07       (H)       MINUTE(O&G)                                                                                            
03/31/07       (H)       O&G AT 1:00 PM BARNES 124                                                                              
03/31/07       (H)       -- MEETING CANCELED --                                                                                 
04/02/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/02/07       (H)       Heard & Held                                                                                           
04/02/07       (H)       MINUTE(O&G)                                                                                            
04/03/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/03/07       (H)       Moved CSHB 177(O&G) Out of Committee                                                                   
04/03/07       (H)       MINUTE(O&G)                                                                                            
04/04/07       (H)       O&G RPT CS(O&G) NT 3DP 2NR 2AM                                                                         
04/04/07       (H)       DP: RAMRAS, DOOGAN, OLSON                                                                              
04/04/07       (H)       NR: SAMUELS, KAWASAKI                                                                                  
04/04/07       (H)       AM: DAHLSTROM, KOHRING                                                                                 
04/04/07       (H)       O&G AT 8:30 AM CAPITOL 106                                                                             
04/04/07       (H)       -- MEETING CANCELED --                                                                                 
04/05/07       (H)       O&G AT 3:00 PM BARNES 124                                                                              
04/05/07       (H)       -- MEETING CANCELED --                                                                                 
04/10/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/10/07       (H)       Heard & Held                                                                                           
04/10/07       (H)       MINUTE(RES)                                                                                            
04/11/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/11/07       (H)       Heard & Held                                                                                           
04/11/07       (H)       MINUTE(RES)                                                                                            
04/12/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/12/07       (H)       Heard & Held                                                                                           
04/12/07       (H)       MINUTE(RES)                                                                                            
04/13/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/13/07       (H)       Heard & Held                                                                                           
04/13/07       (H)       MINUTE(RES)                                                                                            
04/14/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/14/07       (H)       Heard & Held                                                                                           
04/14/07       (H)       MINUTE(RES)                                                                                            
04/16/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/16/07       (H)       Heard & Held                                                                                           
04/16/07       (H)       MINUTE(RES)                                                                                            
04/17/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/17/07       (H)       Heard & Held                                                                                           
04/17/07       (H)       MINUTE(RES)                                                                                            
04/18/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
04/18/07       (H)       Heard & Held                                                                                           
04/18/07       (H)       MINUTE(RES)                                                                                            
04/19/07       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SENATOR HOLLIS FRENCH                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented information on the Alaska State                                                                  
Senate's version of the Alaska Gasline Inducement Act and                                                                       
answered questions.                                                                                                             
                                                                                                                                
SENATOR LESIL MCGUIRE                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Presented  information on the  Alaska State                                                               
Senate's  version  of  the  Alaska  Gasline  Inducement  Act  and                                                               
answered questions.                                                                                                             
                                                                                                                                
DON BULLOCK, Attorney                                                                                                           
Legislative Legal Counsel                                                                                                       
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Answered  questions and  explained possible                                                               
legal issues relating to the Alaska Gasline Inducement Act.                                                                     
                                                                                                                                
SENATOR BILL WIELECHOWSKI                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Answered questions  on the  Alaska Senate's                                                               
version of the Alaska Gasline Inducement Act.                                                                                   
                                                                                                                                
LARRY OSTROVSKY, Chief Assistant Attorney General                                                                               
Statewide Section Supervisor                                                                                                    
Oil, Gas & Mining Section                                                                                                       
Department of Law (DOL)                                                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Explained possible legal  issues associated                                                               
with HB 177.                                                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:06:17  PM.    Representatives                                                             
Gatto,  Johnson, Seaton,  Roses, Edgmon,  Kawasaki, Kohring,  and                                                               
Wilson  were  present  at  the call  to  order.    Representative                                                               
Guttenberg   arrived   as   the    meeting   was   in   progress.                                                               
Representatives  Gruenberg, Fairclough,  and Doogan,  and Senator                                                               
Green were also present.                                                                                                        
                                                                                                                                
HB 177-NATURAL GAS PIPELINE PROJECT                                                                                           
                                                                                                                                
[Contains discussion of SB 104.]                                                                                                
                                                                                                                                
1:06:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  announced that the  only order of  business would                                                               
be HOUSE  BILL NO. 177,  "An Act  relating to the  Alaska Gasline                                                               
Inducement Act;  establishing the  Alaska Gasline  Inducement Act                                                               
matching  contribution  fund;  providing for  an  Alaska  Gasline                                                               
Inducement  Act coordinator;  making  conforming amendments;  and                                                               
providing for an effective date."  [Before the committee was CSHB                                                               
177(O&G).]                                                                                                                      
                                                                                                                                
1:07:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO explained  that the goal of today's  meeting is to                                                               
compare  and understand  the differences  between  the House  and                                                               
Senate  versions of  HB 177,  the Alaska  Gasline Inducement  Act                                                               
(AGIA).                                                                                                                         
                                                                                                                                
1:09:35 PM                                                                                                                    
                                                                                                                                
SENATOR  HOLLIS  FRENCH,   Alaska  State  Legislature,  expressed                                                               
support for the  decision to request members of  the Alaska State                                                               
Senate  to  address  the  members   of  the  Alaska  State  House                                                               
regarding this very important bill  at this stage in the process.                                                               
He first  addressed the provision in  AGIA that allows for  a 10-                                                               
year  freeze on  gas production  taxes.   He  explained that  the                                                               
basic structure  is set forth on  page 22, lines 9  through 16 of                                                               
committee  substitute   (CS)  for  SB  104   (JUD),  25-GS1060\0,                                                               
Bullock, 4/18/07,  (Version O).   The  10-year limitation  to the                                                               
exemption  is described  on page  22, line  17.   As proposed  in                                                               
AGIA, the  tax rate is set  at the beginning of  open season, and                                                               
applies for a  10 year period beginning at the  time the pipeline                                                               
commences operations, he said.                                                                                                  
                                                                                                                                
1:12:34 PM                                                                                                                    
                                                                                                                                
SENATOR  FRENCH  referred  to   the  Alaska  State  Constitution,                                                               
Article IX, section 1 which reads:                                                                                              
                                                                                                                                
       The power of taxation shall never be surrendered.                                                                        
     This power shall not be suspended or contracted away,                                                                      
     except as provided in this article.                                                                                        
                                                                                                                                
                                                                                                                                
SENATOR FRENCH  told the committee  this section was  included in                                                               
the state's constitution  because of a series of  tax breaks that                                                               
had  been granted  by  western state  legislatures  to banks  and                                                               
railroads  in the  late 1880s  as a  way to  attract development.                                                               
When  those legislatures  tried  to remove  the tax  limitations,                                                               
they  were prevented  from  doing  so due  to  provisions in  the                                                               
federal constitution  disallowing impairment of contracts.   As a                                                               
result, the tax breaks became  permanent, he indicated.  Based on                                                               
this,  the constitutions  of prior  states were  amended and  the                                                               
constitutions  of  new  states   were  drafted  to  prohibit  the                                                               
legislature  from surrendering  taxation  authority.   He  opined                                                               
that there  is probably no  state in the  union where it  is more                                                               
important  to have  this  constitutional  protection than  Alaska                                                               
because there  is no state in  the union that is  so dependent on                                                               
one industry.                                                                                                                   
                                                                                                                                
1:14:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked  whether the term sovereign  is essential to                                                               
a determination of this issue.                                                                                                  
                                                                                                                                
SENATOR  FRENCH  suggested  that   the  drafters  of  the  Alaska                                                               
Constitution also recognized  the need to entice  new industry to                                                               
the  state.    Therefore,  they added  the  modifier  "except  as                                                               
provided in this article" to Article  IX, section 1 of the Alaska                                                               
State  Constitution.   He explained  that Article  IX, section  4                                                               
provides  the constitutional  authority  for  commonly known  tax                                                               
exemptions,  such  as  the  senior  property  tax  exemption  and                                                               
provisions  which exempt  religious property  from taxation.   He                                                               
referred to the "crucial third sentence" which reads:                                                                           
                                                                                                                                
       Other exemptions of like or different kind may be                                                                        
     granted by general law.                                                                                                    
                                                                                                                                
SENATOR FRENCH  characterized the aforementioned language  as the                                                               
crux  of the  provision  authorizing the  10-year production  tax                                                               
exemption.                                                                                                                      
                                                                                                                                
CO-CHAIR  GATTO  suggested that  the  words  "like or  different"                                                               
comprise 100 percent of everything.                                                                                             
                                                                                                                                
1:16:13 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  agreed that there  is no getting around  the fact                                                               
that "this is  as different as you can imagine."   He stated that                                                               
while  the context  of  this section  is  clearly about  property                                                               
taxes,  "different  means  different  and  there's  no  point  in                                                               
quibbling over  it."   He noted  that any  tax exemption  must be                                                               
done by  general law  and offered his  belief that  "general law"                                                               
means  statute.   He noted  that statutes  are subject  to change                                                               
anytime by  the legislature.   He set  forth that one  must first                                                               
consider  if  the  tax  freeze  is necessary  to  build  the  gas                                                               
pipeline.     The  second  consideration   is  whether   the  tax                                                               
limitation can be put into law,  and he offered that it should be                                                               
done by statute, since statutory law  is subject to change by the                                                               
legislature.                                                                                                                    
                                                                                                                                
1:17:57 PM                                                                                                                    
                                                                                                                                
SENATOR LESIL  MCGUIRE, Alaska  State Legislature,  conveyed that                                                               
during  the   Alaska  Constitutional  Convention   the  delegates                                                               
discussed  the  Industrial Incentives  Act,  which  she said  was                                                               
"never challenged."   Therefore, it may be hard  to determine how                                                               
the  current  discussions "will  play  out"  in general  law  and                                                               
whether "we  can carve  out these incentives,"  she opined.   She                                                               
offered  her  belief  that  any  tax exemption  must  be  one  of                                                               
"general applicability" and  cannot be crafted for  one group, or                                                               
a "group out of  a group."  Rather, it must  apply to an industry                                                               
or a group of individuals, she opined.                                                                                          
                                                                                                                                
1:19:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO   referred  to   a  prior  situation   where  the                                                               
legislature  modified the  law  to allow  a person  to  sit on  a                                                               
former governor's cabinet.  He offered  that this had been a very                                                               
specific law directed towards "one post in the cabinet."                                                                        
                                                                                                                                
SENATOR MCGUIRE  recalled that it may  have been a change  in law                                                               
to allow the  governor to appoint special  assistants and applied                                                               
to more than one person.                                                                                                        
                                                                                                                                
SENATOR  MCGUIRE addressed  the limitation  of one  legislature's                                                               
ability  to  bind  a  future  legislature.   She  threw  out  for                                                               
committee  consideration  the  issue   of  how  past  legislative                                                               
actions can  affect a  future legislature's ability  to act  in a                                                               
manner contrary to past legislative actions.                                                                                    
                                                                                                                                
1:22:48 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  opined that the  current policy dispute  over the                                                               
proposed  production tax  exemption  is whether  the 10-year  tax                                                               
exemption should  be contractual.   The current  Senate Judiciary                                                               
Committee version  of AGIA does not  have the tax exemption  as a                                                               
contractual provision because legal  counsel has advised that the                                                               
tax  exemption  is  more  likely  to  be  constitutional  if  not                                                               
contractual,  he   explained.    Other  persons   may  present  a                                                               
different perspective,  he implied.   He  noted that  prior legal                                                               
research on the  constitutionality of a "general  law tax freeze"                                                               
also  indicated that  a contractual  tax freeze  would likely  be                                                               
unconstitutional unless the contract was subject to change.                                                                     
                                                                                                                                
1:24:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether it  was possible  to change                                                               
the gas production  tax from an annual tax to  a 10-year tax with                                                               
annualized payments and thereby  avoid constitutional issues.  He                                                               
noted  that the  petroleum profits  tax (PPT)  is an  annual tax,                                                               
with monthly estimated payments.                                                                                                
                                                                                                                                
SENATOR FRENCH opined it may be  possible to structure the tax as                                                               
suggested, but said the real issue  is whether the tax is subject                                                               
to change.                                                                                                                      
                                                                                                                                
SENATOR MCGUIRE  opined that the  tax, however  structured, could                                                               
perhaps be  crafted to apply  to initial  shippers as long  as it                                                               
applied to  all initial shippers.   She offered that the  type of                                                               
fiscal  certainty desired  by some  parties  may unduly  restrict                                                               
future  legislative actions.   She  reminded  the committee  that                                                               
there is  a constitutional  restriction against  dedicated funds,                                                               
therefore  the  legislature  can  only recommend  that  funds  be                                                               
directed towards a certain cause, but cannot mandate it.                                                                        
                                                                                                                                
SENATOR FRENCH opined that the most  "legal way" to do this is to                                                               
amend  the  constitution, but  he  opined  that a  constitutional                                                               
amendment was politically impossible.                                                                                           
                                                                                                                                
CO-CHAIR GATTO stated he agreed that  "we are not going to change                                                               
the constitution because that is the  way it is done all over the                                                               
country," and indeed all over the world - "with no certainty."                                                                  
                                                                                                                                
1:29:02 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  said he agreed  with the  aforementioned comment.                                                               
He  said there  is also  an issue  related to  the separation  of                                                               
powers  between the  legislative and  executive branch  regarding                                                               
the approval or  disapproval of the licensee  by the legislature.                                                               
He  explained  that  the  Senate  Judiciary  Committee's  current                                                               
approach to this  issue is in AS 43.90.190 and  provides that the                                                               
legislature shall  propose a bill,  rather than a  resolution, to                                                               
approve the recommended  licensee as a bill is more  binding.  He                                                               
explained that the Senate Judiciary's  version of AGIA is drafted                                                               
"in  the affirmative"  to provide  for approval  of the  proposed                                                               
license within a 60 day period.   He said there is an issue as to                                                               
whether it  would be an intrusion  on the power of  the executive                                                               
branch  for  the  legislature  to   "step  in  and  say  we  [the                                                               
legislature]  have  a role  in  this."    He  opined that  it  is                                                               
"probably not" an intrusion on the executive branch.                                                                            
                                                                                                                                
1:31:04 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE  opined that there  is not only  a constitutional                                                               
consideration   here,   but    also   practical   and   political                                                               
considerations.   She said  that "in our  committee" there  is no                                                               
question   that  the   members  believe   "it  is   probably  not                                                               
constitutional for certain  elements of the contract."   She also                                                               
opined that  the executive  branch is limited  in its  ability to                                                               
enter  into  contracts  that are  "fundamentally  legislative  in                                                               
nature, - that require the taxation  authority of our body."  She                                                               
offered  her   opinion  that  it   is  preferable  to   keep  the                                                               
legislative approval section  in AGIA so as to "do  it right" and                                                               
so as to increase the legislature's public accountability.                                                                      
                                                                                                                                
CO-CHAIR GATTO  opined that  the idea  of having  the legislature                                                               
approve the contract is the preferable approach.                                                                                
                                                                                                                                
1:34:21 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE told  the committee that state  legal counsel has                                                               
cautioned members to be ever  mindful of the precedents that they                                                               
set in AGIA  and to not lose sight of  the legislature's equal or                                                               
co-equal role in the operation  of government.  Therefore, to not                                                               
require legislative  approval of  the proposed licensee  may cast                                                               
future doubt  on the  legislature's rightful  role in  a contract                                                               
that incorporates fiscal terms, she  opined.  Furthermore, if the                                                               
legislature does  provide a  10-year "lock in  of rates"  for the                                                               
gas  pipeline, it  is likely  that the  legislature will  receive                                                               
requests for  similar incentives from other  industry groups, she                                                               
opined.                                                                                                                         
                                                                                                                                
1:35:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked whether  parties will be entitled                                                               
to  stop moving  forward  if there  is  litigation regarding  the                                                               
constitutionality  of  the  10-year  lock-in  of  production  tax                                                               
rates.                                                                                                                          
                                                                                                                                
SENATOR FRENCH  replied that AGIA  as submitted by  the executive                                                               
branch has a severability clause so  that if one part of the bill                                                               
is unconstitutional,  the rest  of AGIA  still goes  into effect.                                                               
He  said   the  prior  administration's  proposed   Stranded  Gas                                                               
Development Act  (SGDA) was  drafted so  that the  entire process                                                               
stopped if one part of the bill was found unconstitutional.                                                                     
                                                                                                                                
CO-CHAIR GATTO asked  if a shorter tax  exemption provision would                                                               
be more likely to be legal.                                                                                                     
                                                                                                                                
SENATOR FRENCH replied no.                                                                                                      
                                                                                                                                
SENATOR MCGUIRE  recalled that a point  had been made by  a prior                                                               
witness that  "the closer you had  to a nexus in  your rationale,                                                               
the  better you  were  on constitutional  grounds."   Under  this                                                               
approach, if  one started  the tax exemption  "at first  gas" for                                                               
the initial risky 10 years of  the pipeline, then the more likely                                                               
it would be that the  court would uphold the constitutionality of                                                               
the tax incentive, she opined.                                                                                                  
                                                                                                                                
1:38:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON asked  who would have standing  to challenge the                                                               
tax incentive provision of AGIA.                                                                                                
                                                                                                                                
SENATOR  FRENCH  replied  that   any  state  citizen  would  have                                                               
standing to challenge the constitutionality  of the tax incentive                                                               
provision.   He went on to  say that legislative approval  of the                                                               
license  may  reduce  the  grounds  for  legal  challenge  except                                                               
perhaps for  "questions of constitutionality."   He said  this is                                                               
important because  under AGIA  only one  license will  be issued,                                                               
and  if  the award  is  based  solely  on  the decisions  of  the                                                               
commissioners  [of the  Department of  Revenue and  Department of                                                               
Natural  Resources],   disgruntled  applicants  would   have  the                                                               
ability to  "do a  full and thorough  analysis" of  the decision,                                                               
first  before  the administration,  and  then  before the  court.                                                               
However, he  opined "that's not going  to happen once we  put our                                                               
stamp of approval on it" because it  is "just like a bill."  If a                                                               
bill is  constitutional, the bill stays,  he said.  He  said that                                                               
the 60-day  period for approval  will provide an  opportunity for                                                               
disappointed   licensee   applicants   to   appear   before   the                                                               
legislature and argue against the approval of the license.                                                                      
                                                                                                                                
SENATOR MCGUIRE responded to a  query by indicating that a change                                                               
in the CSSB 104 (JUD) had been  made to section 5 to clarify that                                                               
it is the intent of  the legislature that the commissioners issue                                                               
their  first requests  for license  applications  within 90  days                                                               
after the effective date of AGIA.                                                                                               
                                                                                                                                
1:41:45 PM                                                                                                                    
                                                                                                                                
Representative Gruenberg asked how  the timing provisions in AGIA                                                               
for approval of the license would  work in the event of a special                                                               
session,  and whether  the legislature  would have  adequate time                                                               
for review in the event of a special session.                                                                                   
                                                                                                                                
SENATOR FRENCH replied that the  issue has not yet been examined.                                                               
He  opined that  the administration  and the  commissioners would                                                               
likely carefully coordinate the  issuance of the application with                                                               
the possibility of  a special session.  He agreed  that there may                                                               
be  30 days  between  the  call for  a  special  session and  the                                                               
commencement of that session.                                                                                                   
                                                                                                                                
1:43:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG observed that  there may be some tension                                                               
between the  eventual contractual  language and  the severability                                                               
clause in AGIA.                                                                                                                 
                                                                                                                                
SENATOR  MCGUIRE  agreed  that  there is  an  issue  regarding  a                                                               
party's contractual position if  based on a legislative incentive                                                               
that ends  up being  disallowed after the  party has  entered the                                                               
contract.  She indicated that legal counsel would address this.                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG agreed that  the aforementioned point is                                                               
the  issue, but  that he  also  questioned whether  section 7  on                                                               
severability makes  it even more  difficult for a party  to "make                                                               
that argument."                                                                                                                 
                                                                                                                                
SENATOR  MCGUIRE replied  that this  administration's intent  for                                                               
the  severability  clause  is "exactly  opposite  of  the  former                                                               
administration's ... it  is to say that you will  be bound by the                                                               
terms."   She noted that  there is  a process for  abandonment of                                                               
the project should it become  uneconomic.  A licensee could argue                                                               
that  the  lack   of  fiscal  certainty  has   made  the  project                                                               
uneconomic, she said.  At that  point, the state and the licensee                                                               
would invoke the  provisions of AS 43.90.240 to  determine if the                                                               
project is uneconomic, and thus subject to abandonment.                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG  offered that there is  "one avenue" for                                                               
a licensee to  escape the contract terms, and that  is "the route                                                               
of abandonment."   He  stated that  it should  be clear  that the                                                               
legal term abandonment is used  in at least three other contexts:                                                               
property, railroad, and infant abandonment.   He offered that the                                                               
definition in AGIA is unique and is the one that should apply.                                                                  
                                                                                                                                
1:48:35 PM                                                                                                                    
                                                                                                                                
DON  BULLOCK, Attorney,  Legislative  Legal Counsel,  Legislative                                                               
Legal   and  Research   Services,  Legislative   Affairs  Agency,                                                               
reminded  the  committee that  Article  2  of AGIA  concerns  the                                                               
relationship between  the state and  licensee.  Article  3 covers                                                               
resource inducements  and affects the resource  producers, but is                                                               
really  not an  issue  between  the state  and  the licensee,  he                                                               
opined.   He characterized the  inducements "as a carrot"  to get                                                               
"people to commit  their gas to the licensed  project" during the                                                               
initial open season.  He said  that loss of the license incentive                                                               
does not necessarily have an  effect on the licensed project, but                                                               
may have  an effect on the  viability of the project  and how the                                                               
Federal  Energy  Regulatory Commission  (FERC)  would  look at  a                                                               
"commitment  that goes  away  because they  feel  that they  lost                                                               
their  economic  basis  -  for   making  that  commitment."    He                                                               
responded  to  a  comment by  reiterating  that  the  abandonment                                                               
provision  applies  between  the  licensee  and  the  state,  not                                                               
between the  producers and  their commitment  to ship  gas during                                                               
that first binding  open season, he said.  Even  if a producer is                                                               
the licensee,  the producer's obligations  as a recipient  of the                                                               
inducements  differ  from  its  obligations  as  a  licensee,  he                                                               
explained.  He  reiterated that abandonment is  contingent on the                                                               
project  being  found  uneconomic  and that  there  are  enhanced                                                               
standards  relating  to the  term  "uneconomic"  in the  Senate's                                                               
version of the bill.                                                                                                            
                                                                                                                                
1:51:06 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE opined that  Representative Gruenberg is "exactly                                                               
right."  The  method by which a controversy  between the licensee                                                               
and the state  would be settled would be  through the abandonment                                                               
and  arbitration  process to  determine  whether  the project  is                                                               
uneconomic,  she said.   She  said  the bill  section on  "fiscal                                                               
certainty"  was included  to  clarify that  one  of the  elements                                                               
necessary  to make  the project  economic is  the ability  to get                                                               
firm transportation  (FT) commitments.   She offered that  a non-                                                               
producer  licensee  could  argue  that  the  project  has  become                                                               
uneconomic  if  the  provision   on  fiscal  certainty  is  ruled                                                               
unconstitutional.  She  said that she believes  the provisions in                                                               
the bill on  abandonment provide a way to  resolve this potential                                                               
issue in a fair way.                                                                                                            
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  whether a  producer non-licensee                                                               
could  seek  to   use  the  abandonment  process   were  the  tax                                                               
inducement provisions found unconstitutional.                                                                                   
                                                                                                                                
SENATOR FRENCH  replied no,  that the commitment  to ship  gas is                                                               
likely not effected by a change in the tax structure.                                                                           
                                                                                                                                
1:53:30 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK  said  that   several  different  relationships  are                                                               
covered under  AGIA, with  a major portion  of the  bill covering                                                               
the  relationship  between  the  state and  the  licensee.    The                                                               
licensee is to pursue a  pipeline project, but the project itself                                                               
is  not  part of  AGIA,  he  said.   The  licensee  will seek  FT                                                               
commitments from shippers.  The  potential shippers will consider                                                               
whether they can make money  from the project, but those shippers                                                               
will have  a relationship  with the licensee,  not the  state, he                                                               
said.  The  incentives provided by the state are  a factor in the                                                               
project's economics, he said.                                                                                                   
                                                                                                                                
1:55:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  whether an  owner could  maintain a  legal                                                               
action against a party who reneges on an FT commitment.                                                                         
                                                                                                                                
MR. BULLOCK noted  that if there are not  adequate FT commitments                                                               
to finance  the pipeline, then  the parties may  consider whether                                                               
the  project can  be modified  or whether  there are  grounds for                                                               
abandonment of the project.                                                                                                     
                                                                                                                                
1:56:28 PM                                                                                                                    
                                                                                                                                
SENATOR  FRENCH noted  that the  abandonment  provisions are  the                                                               
"circuit   breaker"  portions   of  the   bill  because   in  the                                                               
abandonment  situation the  process  stops.   He  set forth  that                                                               
under  AGIA as  currently  structured, "any  two arbitrators  ...                                                               
could essentially stop  the gas pipeline."  He  indicated that it                                                               
will be  made clear "that  there is a  right of appeal  from that                                                               
decision," through  judicial review will  be under the  "abuse of                                                               
discretion" standard.                                                                                                           
                                                                                                                                
1:57:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  referred to Version  O, page 3,  lines 16-                                                               
19,   which   state   that    the   commissioners   shall   adopt                                                               
administrative  procedures  for  any  protest  and  appeal.    He                                                               
contrasted this provision  with the provision in  Version O, page                                                               
9, lines  11-13, whereby  applicants must  commit to  waive their                                                               
right to appeal the issuance of  the license to another party and                                                               
asked  whether  this  provision   applies  to  administrative  or                                                               
judicial appeals.                                                                                                               
                                                                                                                                
SENATOR FRENCH  explained that the  waiver in Version O,  page 9,                                                               
lines 11-13 is  an attempt to forestall "legal  wrangling" in the                                                               
event no license  has been issued.  He indicated  there are legal                                                               
issues regarding the extent to which appeals can be restricted.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON sought to clarify  whether the intent is to                                                               
waive the right to appeal to a court,  or to waive the right of a                                                               
party  to   appeal  under  whatever  administrative   process  is                                                               
established by the commissioners as  set forth in Version O, page                                                               
3.   He offered that  it appears that  under Version O  an appeal                                                               
process is established that cannot be used.                                                                                     
                                                                                                                                
MR. BULLOCK said he was  confused by the provisions regarding the                                                               
waiver  of  appeals  and  suggested  this  area  could  use  some                                                               
clarification  as to  whether  the waiver  allows  a judicial  or                                                               
administrative  appeal.     He   noted  that   there  may   be  a                                                               
constitutional  basis for  appeal  should there  be  an abuse  of                                                               
discretion  by   the  commissioners  when  making   the  decision                                                               
regarding license issuance.                                                                                                     
                                                                                                                                
SENATOR   MCGUIRE  said   that   the  administrative   procedures                                                               
suggested  in Version  O, page  3, cover  the time  period during                                                               
which  the commissioners  will  be  soliciting for  applications.                                                               
However, the appeal  waiver in page 9, subsection  16, covers the                                                               
period after an  applicant has decided to apply  for the license.                                                               
She reiterated  that the appeal  provisions cover  an applicant's                                                               
rights at  the beginning  of the process  and their  rights after                                                               
the applicant has decided to submit an application.                                                                             
                                                                                                                                
2:03:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON pointed out that  the language on page 3 of                                                               
Version O  covers not only  the solicitation of the  license, but                                                               
also the  award of a license  and he requested that  the language                                                               
be   clarified   to  state   whether   the   waiver  applies   to                                                               
administrative and court appeals or just to court appeals.                                                                      
                                                                                                                                
SENATOR MCGUIRE  stated that she  is aware  of the intent  of the                                                               
provision,  and indicated  that the  language would  be clarified                                                               
"because they are different points in the process."                                                                             
                                                                                                                                
2:04:41 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE said that modifications  were being considered to                                                               
the sections  on vouchers  and arbitration.   She noted  that the                                                               
changes will  require that  Alaska law  apply to  any arbitration                                                               
proceedings,   and    explained   that   Alaska    contract   law                                                               
interpretation incorporates consideration  of an implied covenant                                                               
of  good  faith  and  fair  dealing.    She  said  an  "abuse  of                                                               
discretion  standard" will  be added  for  the court  to use  for                                                               
review.    There  will  be  further  clarification  of  the  term                                                               
"uneconomic,"  she  said.   She  explained  that a  licensee  who                                                               
claimed the project  was uneconomic must first try  to modify the                                                               
contract.   Failing  that,  the licensee  could  then proceed  to                                                               
abandonment proceedings, she said.   If the commissioners and the                                                               
licensee agree that  the project is uneconomic,  then the project                                                               
can be  abandoned, she explained.   If  the parties do  not agree                                                               
that the project  is uneconomic, then the parties  can proceed to                                                               
arbitration.   The  arbitrators must  then use  the criteria  set                                                               
forth  in AGIA  to determine  if the  project is  uneconomic, she                                                               
explained.                                                                                                                      
                                                                                                                                
CO-CHAIR  GATTO said  he hoped  to conform  the House  and Senate                                                               
versions of AGIA as much as possible.                                                                                           
                                                                                                                                
SENATOR  MCGUIRE referred  to Version  O,  page 18,  line 6,  and                                                               
explained  that   the  term  "preponderance  of   evidence,"  was                                                               
included  as  potentially  fairer  than the  higher  standard  of                                                               
"clear and convincing  evidence."  She also noted  that there had                                                               
been  some controversy  regarding whether  the appointment  of an                                                               
AGIA coordinator  should be subject to  legislative confirmation,                                                               
and indicated that this issue was still being considered.                                                                       
                                                                                                                                
2:11:35 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK explained that under  the Alaska Natural Gas Pipeline                                                               
Act  of  2004,  a  pipeline  coordinator  was  appointed  by  the                                                               
President of  the United States,  with the advice and  consent of                                                               
the United States Senate.  He  said that provisions in the Alaska                                                               
Constitution limit the positions  that are subject to legislative                                                               
confirmation and that these provisions  have been "quite narrowly                                                               
construed."     He   explained   that   one  provision   concerns                                                               
commissioners  and  another  refers   to  agencies  such  as  the                                                               
Regulatory  Commission   of  Alaska  (RCA),  which   have  quasi-                                                               
judiciary  functions.    He  opined  that  the  AGIA  coordinator                                                               
position  does  not  seem to  fall  within  those  constitutional                                                               
provisions, but based  on his understanding of the  duties of the                                                               
AGIA commissioner, he indicated  that appointment "would not rise                                                               
to  the  level where  the  constitution  would allow  legislative                                                               
confirmation."   He noted  that there  is no  prohibition against                                                               
the  governor  voluntarily  including   the  legislature  in  the                                                               
appointment  process,  but opined  that  a  separation of  powers                                                               
issue  may  arise  if  the   legislature  does  not  confirm  the                                                               
governor's  choice for  the AGIA  coordinator.   He offered  that                                                               
legal precedent  supports the conclusion  that there need  not be                                                               
legislative  approval  of  any  position lower  than  that  of  a                                                               
commissioner.                                                                                                                   
                                                                                                                                
2:13:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  about  commercial  arbitration                                                               
rules  and Alaska  arbitration proceedings.   He  noted that  the                                                               
House Special Committee on Oil and  Gas version of AGIA refers to                                                               
commercial arbitration rules.                                                                                                   
                                                                                                                                
SENATOR MCGUIRE opined that the  commercial arbitration rules and                                                               
the law of the state would likely work in concert.                                                                              
                                                                                                                                
REPRESENTATIVE GUTTENBERG  said that CSHB 177(O&G)  provides that                                                               
in the event  of a disagreement regarding whether  the project is                                                               
uneconomic,  the "disagreement  shall be  settled by  arbitration                                                               
administered by  the American  Arbitration Association  under its                                                               
Commercial  Arbitration Rules."   Version  O, page  17, line  23,                                                               
refers to  arbitration administered  by the  American Arbitration                                                               
Association  "under  the laws  of  this  state."   He  questioned                                                               
whether the  state has an adequate  body of law in  this area and                                                               
what the  standards are under  commercial arbitration rules.   He                                                               
said he  recalled testimony  from last  year that  indicated some                                                               
arbitration approaches provide advantages to certain parties.                                                                   
                                                                                                                                
SENATOR BILL WIELECHOWSKI, Alaska  State Legislature, opined that                                                               
it would be preferable to use Alaska law to the extent possible.                                                                
                                                                                                                                
2:16:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG  said  that  the  American  Arbitration                                                               
Association  has  a  set of  commercial  arbitration  rules  that                                                               
parties can agree to abide by  through contracts.  He referred to                                                               
AS  09.43.010-595,  which is  the  Uniform  Arbitration Act,  and                                                               
opined  is the  state  law  referred to.    He expressed  concern                                                               
regarding use of  the term "abuse of discretion,"  and noted that                                                               
there are  very narrow grounds which  allow a court to  vacate or                                                               
modify an arbitration  award.  He indicated  that AS 09.43.500(a)                                                               
sets  forth  that  arbitration  awards can  only  be  vacated  if                                                               
procured by corruption,  fraud or other undue means,  or if there                                                               
was  evidence of  partiality,  misconduct,  corruption, or  other                                                               
factors affecting the integrity of  the decision.  He offered his                                                               
belief that there  is nothing in the  Alaska arbitration statutes                                                               
"approaching abuse  of discretion"  and that using  this standard                                                               
would be  a major  change in state  law.  He  said that  the term                                                               
"abuse of  discretion" does not  reflect a uniform  standard, but                                                               
is  interpreted differently  depending on  the area  of law.   He                                                               
offered that in  the event of an appeal, the  meaning of the term                                                               
"abuse of discretion" would likely be a main point on appeal.                                                                   
                                                                                                                                
MR. BULLOCK  opined that  the "abuse  of discretion"  standard is                                                               
generally applicable in administrative appeals.                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG offered his opinion  that it is not that                                                               
simple,  and  opined  that  courts   give  different  degrees  of                                                               
deference to  administrative agencies depending on  the nature of                                                               
the administrative decision.   He characterized the determination                                                               
of "abuse  of discretion"  as a very  complex issue  of appellate                                                               
law.                                                                                                                            
                                                                                                                                
2:20:49 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI said  he  argued against  use  of the  term                                                               
"abuse of discretion" because the  term has varying meanings.  He                                                               
opined that  the default provision  should be the  Alaska Uniform                                                               
Arbitration Act,  which sets a  fairly high standard.   He argued                                                               
in favor  of the term "under  the laws of this  state" in Version                                                               
O, page  17, line 23.   He  said that typically  arbitrators will                                                               
"apply  any  laws  that  they   want,"  and  opined  that  it  is                                                               
appropriate to indicate that Alaska law should apply.                                                                           
                                                                                                                                
CO-CHAIR GATTO observed that the  pipeline may go through another                                                               
country  and asked  whether the  limitation to  Alaska law  could                                                               
cause disputes.                                                                                                                 
                                                                                                                                
MR. BULLOCK  noted that the  abandonment issue concerns  only the                                                               
state and the licensee, not other parties.                                                                                      
                                                                                                                                
SENATOR MCGUIRE suggested  that one approach may  be to reference                                                               
the Alaska statute governing the Uniform Arbitration Act.                                                                       
                                                                                                                                
REPRESENTATIVE   ROSES   recounted   his   experience   with   an                                                               
arbitration  proceeding in  which the  arbitrator used  precedent                                                               
from another  jurisdiction rather than  Alaska law.   He recalled                                                               
that neither side was satisfied with the decision.                                                                              
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what  laws will apply to pipeline                                                               
issues  for the  portions of  the project  outside of  the United                                                               
States.                                                                                                                         
                                                                                                                                
2:25:16 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  replied that  his understanding of  AGIA is                                                               
that the  licensee will agree to  abide by the terms  of AGIA for                                                               
the entire  project.  If there  is a dispute regarding  a portion                                                               
of the  project in Canada  and it is  addressed in AGIA,  then it                                                               
will  be determined  under  the  provisions of  AGIA.   If  those                                                               
provisions  call "for  Alaska law,"  then  that is  the law  that                                                               
applies, he said.                                                                                                               
                                                                                                                                
SENATOR  MCGUIRE opined  that if  AGIA is  a contract,  then some                                                               
parties  might argue  that  federal laws  apply.   If  AGIA is  a                                                               
general law, then Alaska law applies.                                                                                           
                                                                                                                                
MR.  BULLOCK  reiterated  that the  abandonment  provisions  only                                                               
concern the relationship between the  state and the licensee.  He                                                               
indicated  that a  determination that  the project  is uneconomic                                                               
does not necessarily  result in abandonment of  the pipeline, but                                                               
only the  abandonment of the  relationship between the  state and                                                               
the  licensee.    He  opined  that AGIA  is  to  "get  a  project                                                               
started," it is not to define what the project is.                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  responded to a question  by explaining that                                                               
the  bill had  been  amended  to state  that  Alaska law  applies                                                               
throughout the entire AGIA process.                                                                                             
                                                                                                                                
2:28:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked  for clarification as to  whether Alaska law                                                               
applies  to AGIA,  or  whether AGIA  determines  that Alaska  law                                                               
applies to the contract.                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI stated his  understanding is that Alaska law                                                               
applies to AGIA, and any disputes  related to the contract or the                                                               
bill will  "be disposed of  by a court of  competent jurisdiction                                                               
here  in Alaska."   He  opined  that issues  related to  Canadian                                                               
regulatory laws will be "prosecuted in the Canadian courts."                                                                    
                                                                                                                                
2:29:27 PM                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE  said this  issue was  still being  considered by                                                               
the  Senate.   She  noted  that  Version  O, Section  6  concerns                                                               
expedited consideration  of court cases  and sets forth  that the                                                               
legislative  intent  is  for  expedited  consideration  of  cases                                                               
concerning  pipeline issues  as allowed  by the  Alaska Rules  of                                                               
Court.                                                                                                                          
                                                                                                                                
CO-CHAIR GATTO asked what authority  would authorize a party to a                                                               
contract to invoke expedited judicial review.                                                                                   
                                                                                                                                
2:31:03 PM                                                                                                                    
                                                                                                                                
SENATOR  MCGUIRE  stated  it  is   a  statement  of  intent,  and                                                               
indicated  that  there is  a  separation  of powers  issue  which                                                               
restricts  the  ability  of  the   legislature  to  direct  other                                                               
branches of government.                                                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG  suggested that the language  of Version                                                               
O,   Section  6,   be  broadened   to   include  challenges   and                                                               
interpretations  of AGIA  as matters  that the  legislature would                                                               
like reviewed expeditiously.                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI agreed  that  the  aforementioned point  is                                                               
well taken.  He stated that  although Section 6 is not binding on                                                               
the  judicial branch,  the courts  generally attempt  to expedite                                                               
issues like this because "they understand the importance."                                                                      
                                                                                                                                
2:33:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GRUENBERG  asked   about   the  possibility   of                                                               
requiring that challenges to AGIA  be filed within a certain time                                                               
period and  directly to the  Alaska Supreme Court.   He indicated                                                               
that  a similar  approach  was used  during  construction of  the                                                               
Trans-Alaska Pipeline System (TAPS).                                                                                            
                                                                                                                                
2:34:20 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI replied  that there is a  section in Version                                                               
O,  section  420, page  24,  which  requires that  constitutional                                                               
challenges to AGIA be brought within  90 days after issuance of a                                                               
license.   He said  there had  been "quite  a bit"  of discussion                                                               
about the  possibility of granting  original jurisdiction  to the                                                               
Alaska  Supreme  Court.   He  offered  that  if  the goal  is  to                                                               
expedite resolution of  issues under AGIA, an  appeal directly to                                                               
the Alaska  Supreme Court may  not speed  up the process  as that                                                               
Court may have  to appoint a special master to  hold a hearing on                                                               
certain issues.                                                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG  suggested that  a special  master could                                                               
be allowed  to proceed under  a different  set of rules  than the                                                               
normal  appellate  rules  so  as to  expedite  proceedings  on  a                                                               
challenge to AGIA.                                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  explained that a special  master is someone                                                               
selected by the Alaska Supreme  Court to gather facts as directed                                                               
by the court.   He said special masters are  often retired judges                                                               
appointed to  particular cases to  help the Supreme  Court, which                                                               
is not bound by the special master's findings.                                                                                  
                                                                                                                                
2:37:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON opined  that  this committee  may want  to                                                               
consider the  voucher issue in its  discussions of AGIA as  a way                                                               
to address approaches to avoid or address a failed open season.                                                                 
                                                                                                                                
2:37:57 PM                                                                                                                    
                                                                                                                                
MR.  BULLOCK explained  that vouchers  would allow  a utility  or                                                               
other  party  interested   in  buying  gas  to   commit  to  firm                                                               
transportation  (FT)  capacity  during  the  first  binding  open                                                               
season.   After  they acquire  capacity,  they can  apply to  the                                                               
commissioners  for a  voucher that  describes  the capacity  that                                                               
party  has committed  to.   The holder  of the  voucher can  then                                                               
negotiate  with  the  producers   to  enter  a  binding  purchase                                                               
agreement for  gas produced on the  North Slope.  As  part of the                                                               
agreement, the voucher  would be transferred to  the producers so                                                               
that   the  voucher-holder   can  claim   the  royalty   and  tax                                                               
inducements, he explained.  The  goal is to broaden the potential                                                               
parties at the first binding open season, he opined.                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON  asked  whether  the  voucher  allows  the                                                               
purchaser  of gas  on the  other end  to control  the inducements                                                               
that the state would be offering to a shipper.                                                                                  
                                                                                                                                
MR. BULLOCK  stated he believes  there is a requirement  that the                                                               
sale happen on  the North Slope, before input  into the pipeline.                                                               
Otherwise, the gas  producer that "doesn't commit"  would not get                                                               
the benefit  of the  inducements.   The voucher  provision allows                                                               
another  party to  commit  to capacity  on  the pipeline  without                                                               
having its own source of gas,  he explained.  That party then has                                                               
to purchase gas to fulfill  their commitment, and the voucher can                                                               
be offered to the producer as part of the negotiation, he said.                                                                 
                                                                                                                                
2:40:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON offered  his  belief  that previously  the                                                               
upstream  inducements were  available  only to  a  party with  FT                                                               
commitments.   He asked whether  a party  that wants to  sell gas                                                               
but does  not want to  take on  FT commitments can  still receive                                                               
inducements through the voucher system.                                                                                         
                                                                                                                                
MR.  BULLOCK  explained  that  the  voucher  gives  the  resource                                                               
inducement  to  a  producer  that  did  not  bind  themselves  to                                                               
capacity during the first open season.                                                                                          
                                                                                                                                
2:40:57 PM                                                                                                                    
                                                                                                                                
LARRY  OSTROVSKY,  Chief  Assistant Attorney  General,  Statewide                                                               
Section Supervisor, Oil, Gas &  Mining Section, Department of Law                                                               
(DOL)  acknowledged that  the producers  have  claimed that  they                                                               
need fiscal  certainty to be able  to enter FT commitments  for a                                                               
gas pipeline.   He said that when considering AGIA,  there was an                                                               
attempt  to  accommodate  those concerns  within  the  bounds  of                                                               
constitutionality.   He indicated that  the provisions  on fiscal                                                               
certainty were  crafted so  as to  be similar  to the  timing and                                                               
language of  the prior  Industrial Incentive Act.   He  said that                                                               
the provision was intended to  be limited to gas production taxes                                                               
and not to  apply to a broad  ranges of taxes as was  done in the                                                               
SGDA.   He opined that "there  is a pretty good  likelihood" that                                                               
the "provisions we put in  would pass constitutional muster," and                                                               
in any event  there is a severability clause in  AGIA so that the                                                               
process  could continue  despite some  uncertainty regarding  the                                                               
constitutionality of the fiscal certainty provisions.                                                                           
                                                                                                                                
2:44:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON   asked  whether   the   administration's                                                               
position is  that a 10-year  freeze on production  taxes provides                                                               
adequate fiscal  certainty despite  producer testimony  that they                                                               
require fiscal certainty as to all applicable taxes.                                                                            
                                                                                                                                
MR. OSTROVSKY said it is not  surprising in a situation like this                                                               
that  any commercial  party would  desire the  maximum degree  of                                                               
certainty possible.  He indicated  that the state understands the                                                               
concern of  the producers that  even if  one tax rate  is frozen,                                                               
another tax  could still be  raised.   He offered that  an effort                                                               
was made to accommodate the  need for fiscal certainty, but noted                                                               
that  it  could  only  be "accommodated  to  a  certain  extent,"                                                               
without going beyond  the bounds of the constitution.   He opined                                                               
that  although  "this  might not  be  everything"  the  producers                                                               
requested, it represents a determination  of what the drafters of                                                               
AGIA thought  the state  could provide within  the bounds  of the                                                               
state constitution.                                                                                                             
                                                                                                                                
2:47:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked if there  is still any constitutional                                                               
uncertainty if the  10-year provisions do not, in  the opinion of                                                               
the producers, provide fiscal certainty.                                                                                        
                                                                                                                                
MR. OSTROVSKY answered that he  cannot answer for the North Slope                                                               
companies,  although   he  did  note  that   the  producers  have                                                               
expressed a desire  that tax rates be set on  a greater number of                                                               
taxes for a greater period.                                                                                                     
                                                                                                                                
2:48:57 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK addressed  the issue of legislative  approval of AGIA                                                               
and the  applicable time period.   He  said that the  time period                                                               
for  approval  may depend  on  the  extent of  the  legislature's                                                               
review.    He  noted  that  review could  be  as  simple  as  the                                                               
commissioners presenting  only their  recommended licensee,  or a                                                               
more  complex   consideration  of   the  other   acceptable,  but                                                               
ultimately  rejected proposals.    The scope  of  the review  may                                                               
dictate the time required for approval, he explained.                                                                           
                                                                                                                                
CO-CHAIR  GATTO asked  if it  is likely  that legislative  review                                                               
will consist of an up or down vote.                                                                                             
                                                                                                                                
2:50:11 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK  replied that  ultimately it  is an  up or  down vote                                                               
because  the   legislature  will  be  presented   with  only  one                                                               
recommended  licensee.     If  the  licensee   is  rejected,  the                                                               
commissioners have the  discretion to start the  process over and                                                               
request  new  applications, he  said.    He  noted that  in  that                                                               
situation,  the   commissioners  would  have  knowledge   of  the                                                               
legislature's  grounds  for  rejection   of  the  prior  proposed                                                               
licensee.                                                                                                                       
                                                                                                                                
2:50:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO asked  if the  commissioners  could accept  their                                                               
recommended licensee if time runs  out before the legislature has                                                               
time  to   finish  the  task  of   reviewing  the  commissioners'                                                               
recommendation.                                                                                                                 
                                                                                                                                
2:50:56 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK stated  that if a licensee is not  approved, there is                                                               
no licensee  available.  He went  on to say that  if the governor                                                               
and  the  commissioners  believe  the licensee  has  presented  a                                                               
proposal that is in the best  interests of the state, they may go                                                               
ahead and issue the  license.  In that instance, it  may be up to                                                               
the court to  determine if the license issuance under  AGIA is an                                                               
executive decision  that does  not require  legislative approval.                                                               
He opined  that another  party with an  interest in  the pipeline                                                               
could  also raise  the  issue  and request  that  the license  be                                                               
issued even if not approved by the legislature.                                                                                 
                                                                                                                                
2:51:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked  if  the  legislature  was  restricted  to                                                               
approving only a single licensee.                                                                                               
                                                                                                                                
MR.  BULLOCK   explained  that   the  commissioners   review  the                                                               
applications and  present to the  legislature the  licensee whose                                                               
proposal they have  determined to be in the best  interest of the                                                               
state.                                                                                                                          
                                                                                                                                
CO-CHAIR GATTO asked how a  potential liquefied natural gas (LNG)                                                               
project would  be considered in  the event the  legislature later                                                               
wants to have an LNG project.                                                                                                   
                                                                                                                                
2:52:18 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK  replied that  would involve  the provisions  of AGIA                                                               
whereby the licensee is assured that  the state will not give the                                                               
same benefits in AGIA to another  party.  He said that the Senate                                                               
version includes  language that  defines a competing  pipeline as                                                               
one that  transports North  Slope gas of  500 million  cubic feet                                                               
(Mcf).                                                                                                                          
                                                                                                                                
2:53:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  asked whether  the  state  may be  subject  to                                                               
damages under  AGIA should  the state  reduce taxes  or royalties                                                               
after the  pipeline contract  has been  awarded to  a third-party                                                               
licensee.                                                                                                                       
                                                                                                                                
MR. BULLOCK  opined that the state  is not subject to  damages as                                                               
long  as  it  is  not  giving money  to  the  other  pipeline  or                                                               
providing incentives.  He opined  that "tax laws will change" and                                                               
that is alright.                                                                                                                
                                                                                                                                
2:54:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON  sought further clarification as  to whether the                                                               
tax provisions of AGIA are an incentive.                                                                                        
                                                                                                                                
MR. BULLOCK  replied that  it is  ambiguous and  that discussions                                                               
surrounding  both the  House  and Senate  versions  of AGIA  have                                                               
considered the  issue of whether  changes to laws  or regulations                                                               
could be  deemed to  be a  benefit or  inducement to  a competing                                                               
pipeline company.   He noted  that any  change in tax  laws would                                                               
also affect other parties that  may be committing to the licensed                                                               
project.   He went on  to say it is  critical to have  the public                                                               
convenience and  necessity issue, and  if the state's  project is                                                               
going forward it is possible that  a finding could be made that a                                                               
second line is needed.                                                                                                          
                                                                                                                                
2:54:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether the state  will have the                                                               
ability  to evaluate  a  second project  should  one be  proposed                                                               
prior to the commencement of operations of the first pipeline.                                                                  
                                                                                                                                
MR. BULLOCK  answered that the  competition aspect would  have to                                                               
be evaluated  a little bit  further.  He opined  that competition                                                               
takes place at  both the intake and output ends  of the pipeline.                                                               
He said  it is  not clear  without further  consideration whether                                                               
delivery of  gas to  Valdez for shipment  to San  Francisco would                                                               
necessarily  be in  competition  with a  gas  pipeline that  goes                                                               
overland to the Midwestern United States.                                                                                       
                                                                                                                                
2:56:15 PM                                                                                                                    
                                                                                                                                
SENATOR   WIELECHOWSKI  stated   that   a   definition  of   what                                                               
constitutes  a competing  project has  been added  to Version  O,                                                               
page  25,  lines  2-4  which  defines  a  competing  natural  gas                                                               
pipeline   project  as   "a  project   designed  to   accommodate                                                               
throughput of  more than  500,000,000 cubic feet  a day  of North                                                               
Slope gas to  market."  Therefore, an LNG project  with less than                                                               
500  Mcf per  day would  not  meet the  definition of  "competing                                                               
natural  gas pipeline  project,"  he explained.    He stated  the                                                               
intent of  the provision was  not to discourage development  of a                                                               
spur  line or  a bullet  line to  provide natural  gas to  Alaska                                                               
residents and  businesses.   He offered  that 500  Mcf is  a good                                                               
number to provide natural gas for in-state use.                                                                                 
                                                                                                                                
2:57:40 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI addressed  a previous  point as  to whether                                                               
lowered  taxes  could  be  considered  a  preferential  treatment                                                               
extended  to a  competing  project by  noting  that AS  43.90.440                                                               
describes preferential treatment as  actions done with the intent                                                               
to provide preferential royalty or  tax treatment for the purpose                                                               
of  facilitating   or  constructing   a  competing   natural  gas                                                               
pipeline.   He  indicated  that actions  that  do not  constitute                                                               
preferential royalty  or tax treatment  are set forth  in Version                                                               
O, page  25, lines 5-12.   He opined  that if taxes  were lowered                                                               
for  everyone,   that  would  not   be  considered   inducing  or                                                               
facilitating the construction of a natural gas pipeline project.                                                                
                                                                                                                                
CO-CHAIR  JOHNSON  expressed  concern  that the  state  could  be                                                               
liable for damages if the  tax changes allowed for development of                                                               
a  competing  project even  if  the  state's  intent was  not  to                                                               
facilitate a competing project.                                                                                                 
                                                                                                                                
2:58:48 PM                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI   referred  to   language  that   says  the                                                               
treatment  must  be  offered "for  the  purpose  of  facilitating                                                               
construction."   He said  there must be  an intent  to facilitate                                                               
construction of  a competing natural  gas pipeline project  and a                                                               
party seeking damages would have to prove intent.                                                                               
                                                                                                                                
                                                                                                                                
2:59:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked whether  the legislature can describe                                                               
or narrow the scope of its approval.                                                                                            
                                                                                                                                
MR.  BULLOCK  responded that  how  a  legislature approaches  the                                                               
consideration of a recommended licensee  is within the discretion                                                               
of the legislature.                                                                                                             
                                                                                                                                
SENATOR  WIELECHOWSKI said  that  his understanding  is that  the                                                               
legislature can "talk about anything,"  but if the license is not                                                               
approved within  60 days, then the  bill fails and no  license is                                                               
issued.   He opined that at  that point the executive  branch may                                                               
decide  to   award  the  license  despite   lack  of  legislative                                                               
approval.                                                                                                                       
                                                                                                                                
3:02:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON asked  whether  the legislature  can amend  the                                                               
bill  requesting  issuance of  a  license  for the  gas  pipeline                                                               
project.                                                                                                                        
                                                                                                                                
MR. BULLOCK  replied that  the legislature  could amend  the bill                                                               
requesting issuance of the license,  but that AGIA is designed to                                                               
allow the  legislature to approve  or disapprove  the recommended                                                               
licensee.   He  reminded  the committee  that  the separation  of                                                               
powers limitations  may limit the legislature's  ability to amend                                                               
the bill.                                                                                                                       
                                                                                                                                
3:04:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked whether the governor could amend                                                                
AGIA to conform to a licensee she had approved.                                                                                 
                                                                                                                                
MR. BULLOCK replied that the governor can request a bill through                                                                
the House Rules Standing Committee and the legislature can do                                                                   
what it wishes with it.                                                                                                         
                                                                                                                                
[HB 177 was held over.]                                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:05:40                                                                 
PM.                                                                                                                           

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