Legislature(2009 - 2010)BARNES 124

04/13/2009 01:00 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 217 TAX ON GAS FOR IN STATE MANUFACTURING TELECONFERENCED
Heard & Held
+ SJR 16 OFFSHORE OIL & GAS REVENUE TELECONFERENCED
Moved Out of Committee
*+ HJR 33 RESTART COOK INLET PRODUCTION TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 163 ALASKA NATURAL GAS DEVELOPMENT AUTHORITY TELECONFERENCED
Moved CSHB 163(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 13, 2009                                                                                         
                           1:05 p.m.                                                                                            
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Craig Johnson, Co-Chair                                                                                          
Representative Mark Neuman, Co-Chair                                                                                            
Representative Bryce Edgmon                                                                                                     
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Chris Tuck                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Peggy Wilson                                                                                                     
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 163                                                                                                              
"An  Act  clarifying  the  purpose  of  the  Alaska  Natural  Gas                                                               
Development  Authority; and  relating to  definitions of  certain                                                               
terms in AS 41.41."                                                                                                             
                                                                                                                                
     - MOVED CSHB 163(RES) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 217                                                                                                              
"An  Act relating  to the  tax  applicable to  the production  of                                                               
natural gas used  in the state as fuel or  feedstock in producing                                                               
a manufactured end product."                                                                                                    
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
CS FOR SENATE JOINT RESOLUTION NO. 16(RES)                                                                                      
Expressing  support for  responsible development  of the  oil and                                                               
gas resources in  federal waters offshore of Alaska's  coast as a                                                               
means  to ensure  energy independence,  security for  the nation,                                                               
and jobs for  Alaskans; and urging the United  States Congress to                                                               
provide  a  means  for  consistently  sharing  with  all  coastal                                                               
energy-producing states,  on an ongoing basis,  revenue generated                                                               
from oil and  gas development on the outer  continental shelf, to                                                               
ensure  that   those  states   develop,  support,   and  maintain                                                               
necessary infrastructure and preserve environmental integrity.                                                                  
                                                                                                                                
     - MOVED CSSJR 16(RES) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE JOINT RESOLUTION NO. 33                                                                                                   
Urging   immediate   action   by   the   governor,   the   Alaska                                                               
Congressional  delegation,  and  state and  federal  agencies  to                                                               
assist in  the restart of oil  production in Cook Inlet  that was                                                               
affected by the eruption of Mt. Redoubt.                                                                                        
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 163                                                                                                                  
SHORT TITLE: ALASKA NATURAL GAS DEVELOPMENT AUTHORITY                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/02/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/02/09       (H)       ENE, RES, FIN                                                                                          
03/28/09       (H)       ENE AT 10:00 AM BARNES 124                                                                             
03/28/09       (H)       Heard & Held                                                                                           
03/28/09       (H)       MINUTE(ENE)                                                                                            
04/09/09       (H)       ENE AT 3:00 PM BARNES 124                                                                              
04/09/09       (H)       Moved Out of Committee                                                                                 
04/09/09       (H)       MINUTE(ENE)                                                                                            
04/10/09       (H)       ENE RPT 3DNP 3NR                                                                                       
04/10/09       (H)       DNP: RAMRAS, PETERSEN, EDGMON                                                                          
04/10/09       (H)       NR: DAHLSTROM, JOHANSEN, TUCK                                                                          
04/11/09       (H)       RES AT 12:00 AM BARNES 124                                                                             
04/11/09       (H)       Heard & Held                                                                                           
04/11/09       (H)       MINUTE(RES)                                                                                            
04/13/09       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 217                                                                                                                  
SHORT TITLE: TAX ON GAS FOR IN STATE MANUFACTURING                                                                              
SPONSOR(s): REPRESENTATIVE(s) NEUMAN                                                                                            
                                                                                                                                
04/06/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/09       (H)       RES, FIN                                                                                               
04/13/09       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: SJR 16                                                                                                                  
SHORT TITLE: OFFSHORE OIL & GAS REVENUE                                                                                         
SPONSOR(s): SENATOR(s) WIELECHOWSKI                                                                                             
                                                                                                                                
03/20/09       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/20/09       (S)       RES                                                                                                    
03/25/09       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/25/09       (S)       Heard & Held                                                                                           
03/25/09       (S)       MINUTE(RES)                                                                                            
03/27/09       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/27/09       (S)       Moved CSSJR 16(RES) Out of Committee                                                                   
03/27/09       (S)       MINUTE(RES)                                                                                            
03/30/09       (S)       RES RPT CS  4DP 1NR    NEW TITLE                                                                       
03/30/09       (S)       DP:   MCGUIRE,   WIELECHOWSKI,   FRENCH,                                                               
                         STEVENS                                                                                                
03/30/09       (S)       NR: HUGGINS                                                                                            
04/03/09       (S)       TRANSMITTED TO (H)                                                                                     
04/03/09       (S)       VERSION: CSSJR 16(RES)                                                                                 
04/06/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/09       (H)       RES                                                                                                    
04/13/09       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HJR 33                                                                                                                  
SHORT TITLE: RESTART COOK INLET PRODUCTION                                                                                      
SPONSOR(s): REPRESENTATIVE(s) OLSON                                                                                             
                                                                                                                                
04/13/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/13/09       (H)       RES                                                                                                    
04/13/09       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DONALD BULLOCK JR., Legislative Counsel                                                                                         
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During the hearing on HB 163, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
DONALD BULLOCK JR., Legislative Counsel                                                                                         
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During the hearing on HB 217, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
KEVIN BANKS, Director                                                                                                           
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  During the hearing on HB 217, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
LENNIE DEES, Audit Master                                                                                                       
Tax-Production Audit Group                                                                                                      
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During  the hearing  on  HB 217,  answered                                                             
questions.                                                                                                                      
                                                                                                                                
MICHELLE SYDEMAN, Staff,                                                                                                        
Senator Bill Wielechowski                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Introduced SJR  16 on behalf of  the Senate                                                             
Resources    Standing   Committee,    sponsor,   which    Senator                                                               
Wielechowski co-chairs.                                                                                                         
                                                                                                                                
JENNIFER SENETTE, Staff,                                                                                                        
Representative Kurt Olson                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     Introduced   HJR   33   on  behalf   of                                                             
Representative Olson, sponsor.                                                                                                  
                                                                                                                                
KEVIN BANKS, Director                                                                                                           
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During  the hearing  on  HJR 33,  answered                                                             
questions and suggested an amendment.                                                                                           
                                                                                                                                
JACK WILES                                                                                                                      
Kachemak Bay Conservation Society                                                                                               
Homer, Alaska                                                                                                                   
POSITION STATEMENT:   During the hearing on HJR 33,  urged a more                                                             
thorough analysis of the Drift River Oil Terminal situation.                                                                    
                                                                                                                                
ROBERT ARCHIBALD                                                                                                                
Kachemak Bay Conservation Society                                                                                               
Homer, Alaska                                                                                                                   
POSITION STATEMENT:   During the hearing  on HJR 33, urged  a new                                                             
facility be designed that is not  in the floodplain of a volcanic                                                               
river.                                                                                                                          
                                                                                                                                
ELISE WOLF                                                                                                                      
Homer, Alaska                                                                                                                   
POSITION  STATEMENT:   During the  hearing on  HJR 33,  urged the                                                             
Drift River Oil  Terminal not be restarted and  encouraged that a                                                               
pipeline be constructed instead.                                                                                                
                                                                                                                                
WHITNEY LOWE                                                                                                                    
Homer, Alaska                                                                                                                   
POSITION  STATEMENT:   During the  hearing on  HJR 33,  stated it                                                             
would be  inappropriate to re-open  the Drift River  Oil Terminal                                                               
at this time.                                                                                                                   
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:05:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  MARK   NEUMAN  called  the  House   Resources  Standing                                                             
Committee meeting to order at  1:05 p.m.  Representatives Edgmon,                                                               
Olson, Seaton,  Johnson, and Neuman  were present at the  call to                                                               
order.   Representatives Guttenberg,  Kawasaki, and  Tuck arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
HB 163-ALASKA NATURAL GAS DEVELOPMENT AUTHORITY                                                                               
                                                                                                                                
1:06:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  announced that  the first  order of  business is                                                               
HOUSE BILL NO. 163, "An Act  clarifying the purpose of the Alaska                                                               
Natural Gas  Development Authority;  and relating  to definitions                                                               
of certain terms in AS 41.41."                                                                                                  
                                                                                                                                
CO-CHAIR  JOHNSON  moved that  the  committee  adopt version  26-                                                               
GH1057\R, Bullock, 4/13/09 (Version  R), as the working document.                                                               
There being no objection, Version R was before the committee.                                                                   
                                                                                                                                
CO-CHAIR NEUMAN  referred members  to the  April 13,  2009, legal                                                               
explanation  received   from  Mr.   Bullock  in  regard   to  the                                                               
conceptual amendments incorporated into Version R.                                                                              
                                                                                                                                
1:07:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   JOHNSON  asked   whether  Representative   Seaton  had                                                               
reviewed  the  legal  opinion  as to  the  incorporation  of  his                                                               
amendment regarding  the [Alaska]  outer continental  shelf (OCS)                                                               
[Conceptual Amendment 1 passed on April 11, 2009].                                                                              
                                                                                                                                
REPRESENTATIVE  SEATON   explained  that  his  intent   with  the                                                               
amendment was to  take input of gas into a  pipeline, not build a                                                               
pipeline offshore  to an  OCS supply.   Therefore,  he continued,                                                               
the wording in Version R accomplishes the goal of the amendment.                                                                
                                                                                                                                
1:08:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON noted  that Version R may  not have incorporated                                                               
Representative  Guttenberg's  amendment [Conceptual  Amendment  2                                                               
passed on April 11, 2009].                                                                                                      
                                                                                                                                
REPRESENTATIVE GUTTENBERG replied that Version R does not.                                                                      
                                                                                                                                
CO-CHAIR JOHNSON said  he thinks Mr. Bullock  has amendments that                                                               
will do what Representative Guttenberg wants to do.                                                                             
                                                                                                                                
REPRESENTATIVE   GUTTENBERG  moved   Amendment  1,   labeled  26-                                                               
G1057\A.2, Bullock, 4/13/09, as follows:                                                                                        
                                                                                                                                
                                                                                                                                
     Page 2, line 2:                                                                                                            
          Delete "the pipeline system project"                                                                                  
          Insert "[THE] pipeline system projects [PROJECT]"                                                                 
                                                                                                                                
     Page 2, line 11:                                                                                                           
          Delete "markets"                                                                                                  
          Insert "a market"                                                                                                 
                                                                                                                                
     Page 2, line 12, following "or":                                                                                       
          Insert "to a market in the state and"                                                                             
                                                                                                                                
CO-CHAIR JOHNSON objected for purposes of discussion.                                                                           
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  said his  intent  is  to ensure  that                                                               
every time a market or project  is described it includes a market                                                               
in the state.                                                                                                                   
                                                                                                                                
1:10:25 PM                                                                                                                    
                                                                                                                                
DONALD BULLOCK  JR., Legislative  Counsel, Legislative  Legal and                                                               
Research  Services,  Legislative  Affairs  Agency,  Alaska  State                                                               
Legislature, understood the intent of  the amendment is to ensure                                                               
that no  matter the project, it  include delivery to a  market in                                                               
the state.  Therefore, he continued,  Amendment 1 says that it be                                                               
to a  market in  the state  or to a  market in  the state  and to                                                               
alternative  tidewater  points,  Cook Inlet  and  Prince  William                                                               
Sound.                                                                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  asked whether Amendment 1  would mean that                                                               
an export  market could not  be built  unless there is  also some                                                               
other delivery in the state.                                                                                                    
                                                                                                                                
MR.  BULLOCK responded  that it  avoids the  issue of  a pipeline                                                               
that  would bypass  all the  in-state  markets by  going just  to                                                               
tidewater  and being  exported.   He  understood the  amendment's                                                               
intent is to ensure that there  is gas delivered from the project                                                               
to a market  in the state; whether  or not some of  the other gas                                                               
is exported would not be affected.                                                                                              
                                                                                                                                
1:12:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG,  in   response  to  Co-Chair  Neuman,                                                               
agreed [Amendment  1 was to the  original version of HB  163, not                                                               
Version R].  He said he  believes that in Version R the amendment                                                               
would apply to page 2, line 12,  after the last "or".  In further                                                               
response,  he said  page 2,  [lines  12-13], of  Version R  would                                                               
therefore read:                                                                                                                 
                                                                                                                                
     North Slope of Alaska or other regions of the state to                                                                     
     market in the state or to a market in the state and to                                                                     
     tidewater at a point on Prince William Sound                                                                             
                                                                                                                                
1:13:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  inquired  whether  Representative  Guttenberg's                                                               
intent is  to ensure  that gas coming  down an  in-state pipeline                                                               
can only be sold to markets in the state.                                                                                       
                                                                                                                                
REPRESENTATIVE  GUTTENBERG answered  no.   He explained  that any                                                               
gasline in  the state  under the  Alaska Natural  Gas Development                                                               
Authority (ANGDA) has to have an  in-state use component.  If gas                                                               
must be  exported in order  to make the project  economical, some                                                               
component  of the  project's gas  will also  be used  in-state; a                                                               
project could not  be built just for export.   It does not matter                                                               
what  is taken  off for  use  in-state, it  could be  any of  the                                                               
hydrocarbons.                                                                                                                   
                                                                                                                                
1:14:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN surmised that Amendment  1 would disallow running                                                               
gas down a pipeline to Valdez for liquefaction and export.                                                                      
                                                                                                                                
REPRESENTATIVE GUTTENBERG  responded that some component  of such                                                               
a pipeline would have to be used for in-state market.                                                                           
                                                                                                                                
CO-CHAIR NEUMAN said he is wary of the language.                                                                                
                                                                                                                                
CO-CHAIR JOHNSON  said his understanding  of Amendment 1  is that                                                               
it would assure off-take points  somewhere along the pipeline for                                                               
use of  in-state gas  and is therefore  consistent with  what was                                                               
done for  the "big  line".   He said he  thinks it  is consistent                                                               
with what is needed.                                                                                                            
                                                                                                                                
1:15:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  moved that  the line numbers  in Amendment  1 be                                                               
amended to conform to Version R.                                                                                                
                                                                                                                                
REPRESENTATIVE GUTTENBERG agreed.                                                                                               
                                                                                                                                
MR. BULLOCK clarified  that to conform to Version  R, Amendment 1                                                               
would need to be amended to read as follows:                                                                                    
                                                                                                                                
     Page 2, line 3:                                                                                                            
          Delete "the pipeline system project"                                                                                  
          Insert "[THE] pipeline system projects [PROJECT]"                                                                 
                                                                                                                                
     Page 2, line 12:                                                                                                           
          Delete "markets"                                                                                                  
          Insert "a market"                                                                                                 
                                                                                                                                
     Page 2, line 12, following "or":                                                                                       
          Insert "to a market in the state and"                                                                             
                                                                                                                                
There  being  no objection,  the  amendment  to Amendment  1  was                                                               
passed.                                                                                                                         
                                                                                                                                
1:16:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON outlined  a scenario in which  gas from the                                                               
Nenana basin supplies Fairbanks prior  to the building of ANGDA's                                                               
line  and then  no one  buys gas  from an  off-take on  this line                                                               
because  it is  more expensive  than the  Nenana gas.   He  asked                                                               
whether Amendment  1 would then  mean that  the gas could  not be                                                               
exported because  none is  supplied for in-state  use.   In other                                                               
words, a  gas line could not  be built unless it  supplies gas to                                                               
an in-state market, even if it provides access to supply.                                                                       
                                                                                                                                
REPRESENTATIVE  GUTTENBERG replied  that  that  reading would  be                                                               
right should  the market  in the  state for  gas be  satiated and                                                               
there are  economics for another  line, which is something  he is                                                               
unsure he  will see in his  lifetime.  However, he  continued, he                                                               
wants to ensure that the  project description now, going forward,                                                               
says that any project will have an in-state use component.                                                                      
                                                                                                                                
MR. BULLOCK pointed out that the focus  of HB 163 is on a project                                                               
by  the Alaska  Natural Gas  Development Authority  and therefore                                                               
Amendment 1  would not be applicable  to any other pipeline.   He                                                               
said he  believes the original  intent of  part of ANGDA  was not                                                               
only to  get gas  produced, but  also to get  it to  Alaskans, so                                                               
Amendment  1  follows the  original  intent  that Alaskans  would                                                               
benefit from an ANGDA project.   Amendment 1 would have no effect                                                               
on a project outside of ANGDA, he pointed out.                                                                                  
                                                                                                                                
1:19:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON  inquired whether the wording  presently in                                                               
HB 163  is sufficient to  carry out  the purpose of  Amendment 1,                                                               
which seems to add a finer level of detail to the meaning.                                                                      
                                                                                                                                
MR.  BULLOCK answered  that he  thinks  Amendment 1  specifically                                                               
clarifies that whether  the option is to a market  in-state or to                                                               
tidewater, there is  going to be a  market in the state.   As the                                                               
bill is currently  written, it could be read as  an alternative -                                                               
either to a market in the state or to tidewater.                                                                                
                                                                                                                                
1:20:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  argued that this constraint  means that if                                                               
Nenana comes on  line and supplies gas cheaper  to Fairbanks than                                                               
could be supplied  from the North Slope, ANGDA could  not build a                                                               
line to Valdez for export because  it would not also be supplying                                                               
gas for in-state.   He said he thinks the  taxation structure for                                                               
exports  provides a  natural incentive  for a  supplier to  first                                                               
fill  up as  much of  the local  market as  possible.   He feared                                                               
that,  in the  future,  Amendment  1 could  put  a constraint  on                                                               
ANGDA's ability to build an export gasline.                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG responded that  his job as a legislator                                                               
is to  ensure that  ANGDA's project,  at this  point, has  an in-                                                               
state component,  and someone  else can build  a project  that is                                                               
outside  of this.   Until  such time  as the  in-state market  is                                                               
satiated, he said, ANGDA's proposals  should have a component for                                                               
in-state use.                                                                                                                   
                                                                                                                                
1:23:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  described  a  scenario in  which  gas  is                                                               
brought to  [the Nikiski liquefied  natural gas (LNG)  plant] for                                                               
export and  Cook Inlet gas  provides the supply for  in-state use                                                               
in Southcentral Alaska.   He asked whether it is  a net amount of                                                               
gas that is being talked about  or molecules of gas as regards to                                                               
how the restriction would work.                                                                                                 
                                                                                                                                
REPRESENTATIVE GUTTENBERG  replied that  when the  development of                                                               
projects  in Southcentral,  Southeast, and  Interior Alaska  have                                                               
changed  that  much, there  will  likely  be legislation  brought                                                               
forward  that clarifies  those purposes,  the  markets, and  Cook                                                               
Inlet  exports.   At  that  point  he  would consider  all  those                                                               
changes, but right  now on ANGDA's project he wants  to make sure                                                               
there is an in-state use component.                                                                                             
                                                                                                                                
1:26:03 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON said he  sympathizes with Representative Seaton,                                                               
but thinks it  is acceptable for someone with a  project from the                                                               
North Slope to  Valdez with no in-state use component  to have to                                                               
come back  to the legislature.   Therefore, based on what  he has                                                               
heard from his  constituents, the mandate in Amendment  1 for in-                                                               
state supply  is appropriate.  For  now the message must  be very                                                               
loud  and clear  to  ANGDA,  the governor,  and  the citizens  of                                                               
Alaska that the in-state use of  natural gas is the top priority.                                                               
He withdrew his objection to Amendment 1.                                                                                       
                                                                                                                                
1:27:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  objected to  Amendment 1, saying  he wants                                                               
to get the  intent of the amendment on record.   He asked whether                                                               
it would  be considered an  in-state use of  gas if a  gasline is                                                               
brought to Southcentral Alaska that  is no larger than the export                                                               
amount of  gas from [the Nikiski  LNG plant] and the  plant could                                                               
only  get its  export license  renewed with  that additional  gas                                                               
coming in,  so it is  a net export  of that gas.   Is it  net, he                                                               
asked, or  since it comes  into the  pipeline system is  it mixed                                                               
gas and therefore the project could  go forward, or would it have                                                               
to come back to the legislature in order to be moved forward.                                                                   
                                                                                                                                
MR.  BULLOCK clarified  that  the  policy aspect  of  this is  to                                                               
determine what  the basic purpose of  ANGDA is and what  the kind                                                               
of project is  that ANGDA is developing.  If  the purpose is only                                                               
to get gas  produced in the state to get  the state royalties and                                                               
production tax, then it does  not matter where the pipeline goes.                                                               
But, if the  purpose of ANGDA is also to  make sure that Alaskans                                                               
have  the  benefit of  the  gas  resources, then  identifying  or                                                               
requiring a  certain amount to  be available  to a market  in the                                                               
state would be an alternative purpose of ANGDA.                                                                                 
                                                                                                                                
1:29:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK outlined  a scenario  in which  there is  an                                                               
existing  ANGDA gasline  serving both  export and  in-state uses,                                                               
and a supplier wants to build  a line that ties into the existing                                                               
line, but that  supplier's line would carry gas that  is only for                                                               
export.   He offered his  opinion that the supplier's  line would                                                               
fall outside  of ANGDA's jurisdiction  and would have to  be done                                                               
some another way.                                                                                                               
                                                                                                                                
CO-CHAIR NEUMAN  agreed that it is  a question of how  to mix the                                                               
molecules.                                                                                                                      
                                                                                                                                
1:30:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  said  Mr.  Bullock may  have  solved  his                                                               
problem with  the word available.   He moved to amend  line 10 of                                                               
Amendment 1  by adding the  words "to  be available" in  front of                                                           
"to a market in the state and".   Thus, he explained, even if the                                                           
economics are such that the market  in the state does not wish to                                                               
buy that  gas, the gas  would be  made available in  the proposed                                                               
gasline.                                                                                                                        
                                                                                                                                
CO-CHAIR NEUMAN objected to the amendment to Amendment 1.                                                                       
                                                                                                                                
REPRESENTATIVE GUTTENBERG  said it  is his hope  that the  gas be                                                               
more than available should ANGDA  builds a gasline from anywhere.                                                               
Just saying  make available does  not make ANGDA  responsible for                                                               
guaranteeing  that  part  of  the project  is  in-state  use,  he                                                               
argued.   He said  that he  wants to ensure  that a  component of                                                               
this  project  is  specifically  for in-state  use  and  part  of                                                               
ANGDA's role is to make sure that happens.                                                                                      
                                                                                                                                
1:32:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  inquired  whether  the  scenario  described  by                                                               
Representative  Tuck, the  mixing  of molecules,  would have  any                                                               
effect on this.                                                                                                                 
                                                                                                                                
MR. BULLOCK  answered that the focus  of ANGDA is for  a project,                                                               
more so  than what goes into  it.  If this  amendment is accepted                                                               
and ANGDA's  effort is  toward the  pipeline, then,  whatever the                                                               
gas source,  there will be  gas from somewhere flying  through an                                                               
ANGDA pipeline  to a market  somewhere in  this state as  well as                                                               
possible export.                                                                                                                
                                                                                                                                
REPRESENTATIVE SEATON argued  that the project needs  to make the                                                               
gas available, but  it should not be vetoed if  there are cheaper                                                               
alternatives for local  areas and those areas do not  want to buy                                                               
the gas.   The amendment to  Amendment 1 makes the  gas available                                                               
to  a market,  which  is  the critical  factor  that members  are                                                               
trying to get to.  The  state's tax rate will stimulate any owner                                                               
of  gas to  want to  sell  as much  gas in-state  as possible  to                                                               
reduce  taxes.   He agreed  that in-state  use is  definitely the                                                               
priority, but maintained  that not enough due  diligence has been                                                               
done for  putting the  onus on  gas owners that  the gas  must be                                                               
sold in-state,  possibly at less  than market price, in  order to                                                               
do the project.  He said he thinks this amendment is a way out.                                                                 
                                                                                                                                
1:34:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK said  he thinks the language  in the proposed                                                               
original amendment  allows for  both export  and in-state  use of                                                               
gas, which  is the original  intent of  ANGDA.  He  expressed his                                                               
concern that  accepting the amendment  to Amendment 1  will allow                                                               
the building of pipelines for export only.                                                                                      
                                                                                                                                
MR.  BULLOCK recommended  inserting "be  available" before  "to a                                                       
market" on  line 10 of  Amendment 1.  Thus,  it would read:   "or                                                       
other regions  of the state  or be available  to a market  in the                                                           
state and".                                                                                                                 
                                                                                                                                
REPRESENTATIVE   SEATON  said   he   understands  Mr.   Bullock's                                                               
recommendation and would consider that.                                                                                         
                                                                                                                                
REPRESENTATIVE   GUTTENBERG   also   understood   Mr.   Bullock's                                                               
recommendation.                                                                                                                 
                                                                                                                                
CO-CHAIR  NEUMAN  removed  his  objection  to  the  amendment  to                                                               
Amendment 1.  There being  no further objection, the amendment to                                                               
Amendment 1 was passed.                                                                                                         
                                                                                                                                
There being no objection, Amendment 1, as amended, was passed.                                                                  
                                                                                                                                
1:36:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  understood that  Amendment 1,  as amended,                                                               
was conceptual.                                                                                                                 
                                                                                                                                
CO-CHAIR NEUMAN said correct.                                                                                                   
                                                                                                                                
CO-CHAIR JOHNSON  removed any objections  he may have had  on the                                                               
table.                                                                                                                          
                                                                                                                                
CO-CHAIR JOHNSON moved to report  the committee substitute for HB
163, labeled  26-GH1057\R, Bullock,  4/13/09, as amended,  out of                                                               
committee with  individual recommendations and zero  fiscal note.                                                               
There being no  objection, CSHB 163(RES) was reported  out of the                                                               
House Resources Standing Committee.                                                                                             
                                                                                                                              
HB 217-TAX ON GAS FOR IN STATE MANUFACTURING                                                                                  
                                                                                                                              
1:38:19 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN announced  that the  next order  of business  is                                                               
HOUSE BILL  NO. 217, "An  Act relating  to the tax  applicable to                                                               
the  production of  natural  gas used  in the  state  as fuel  or                                                               
feedstock in producing a manufactured end product."                                                                             
                                                                                                                                
The committee took an at-ease from 1:38 p.m. to 1:39 p.m.                                                                       
                                                                                                                                
[Due  to technical  difficulties the  audio for  the time  period                                                               
from 1:39 p.m. to 1:41 p.m. is unavailable.]                                                                                    
                                                                                                                                
1:40:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON moved  Amendment 1,  labeled 26-LS0816\A.1,                                                               
Bullock, 4/13/09, as follows:                                                                                                   
                                                                                                                                
     Page 1, following line 8:                                                                                                  
          Insert a new bill section to read:                                                                                    
       "* Sec. 2. AS 43.55.900 is amended by adding a new                                                                   
     paragraph to read:                                                                                                         
               (25)  "manufacturing process" means a                                                                            
       process that involves a chemical transformation of                                                                       
       feedstock gas or combination of feedstock gas with                                                                       
     other components."                                                                                                         
                                                                                                                                
CO-CHAIR NEUMAN objected for purpose of discussion.                                                                             
                                                                                                                                
1:41:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what AS 43.55.900 is related to.                                                                
                                                                                                                                
CO-CHAIR NEUMAN said  he believes it has to do  with the in-state                                                               
five percent production tax on oil and gas.                                                                                     
                                                                                                                                
DONALD BULLOCK  JR., Legislative  Counsel, Legislative  Legal and                                                               
Research  Services,  Legislative  Affairs  Agency,  Alaska  State                                                               
Legislature,  first pointed  out  that the  phrase  "used in  the                                                               
state" in  HB 217 is important  because there is a  tax cap under                                                               
the production  tax in AS  43.55.0110, subsection (o),  that caps                                                               
gas that is produced outside of  Cook Inlet and used in the state                                                               
and the cap  is equal to the  tax cap that is on  Cook Inlet gas.                                                               
He  said 43.55.900  is the  section  of the  production tax  that                                                               
includes  all the  definitions for  that chapter.   He  explained                                                               
that HB  217 and  Amendment 1 amend  the definition  in paragraph                                                               
(24)  and  add  the  definition   for  manufacturing  process  in                                                               
paragraph (25).                                                                                                                 
                                                                                                                                
1:42:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  understood  that under  Amendment  1  the                                                               
conversion  of gas  to fertilizer  or the  petrochemical industry                                                               
producing   a   different   product   would   be   considered   a                                                               
manufacturing  process, whereas  simply  chilling and  liquefying                                                               
the gas or  simply stripping out the propane  without changing it                                                               
would not be considered a manufacturing process.                                                                                
                                                                                                                                
CO-CHAIR  NEUMAN responded  that his  intent  with HB  217 is  to                                                               
ensure there is added value.   Pulling out propanes, butanes, and                                                               
ethanes  from natural  gas would  be  an added  value because  it                                                               
would  be  creating  jobs  and  industry  within  the  state  and                                                               
therefore  it   would  be   considered  manufacturing.     Simply                                                               
liquefying natural gas would not be included.                                                                                   
                                                                                                                                
1:44:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON said  he  is unsure  that this  definition                                                               
qualifies for Representative Neuman's intent.                                                                                   
                                                                                                                                
CO-CHAIR NEUMAN replied that HB 217  will be held so that work in                                                               
this regard can continue.                                                                                                       
                                                                                                                                
MR. BULLOCK  said he reads  the description of  the manufacturing                                                               
process in  Amendment 1 as  meaning that something is  coming out                                                               
that  is  different than  what  went  in.   If  the  gas is  just                                                               
liquefied, it is the same thing  that went in that is coming out.                                                               
If it is  combined with other chemicals to produce  a product, or                                                               
if is used  as the substance for something  like fertilizer, then                                                               
that is the manufacturing process that has changed the gas.                                                                     
                                                                                                                                
CO-CHAIR  NEUMAN removed  his objection  to Amendment  1.   There                                                               
being no further objection, Amendment 1 was passed.                                                                             
                                                                                                                                
1:45:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN said  his intent  in HB  217 is  to ensure  more                                                               
added value processing  of Alaska's natural gas.   The processing                                                               
of gas to liquids in Alaska  by the military would fall under the                                                               
definition of  used in  state and  would fall  under a  5 percent                                                               
production tax.  This was expanded  to encompass all of the state                                                               
when Alaska's  Clear and  Equitable Share  (ACES) became  law, he                                                               
continued.  Under  current law, in-state use only  applies to the                                                               
generation  of electricity  or  home heating,  and  HB 217  would                                                               
expand this  to include the  use of gas  as fuel or  feedstock in                                                               
manufacturing.   Creating more added value  through manufacturing                                                               
would  expand the  economic opportunities  to the  state for  its                                                               
natural gas, as  opposed to just exporting it.   He noted that he                                                               
will hold the bill because he  is unsure whether the 5 percent is                                                               
enough  incentive and  there may  be something  else that  can be                                                               
added.                                                                                                                          
                                                                                                                                
REPRESENTATIVE   GUTTENBERG  cautioned   that   there  might   be                                                               
processes of  using the gas  that people in Alaska  are currently                                                               
unaware of because there is  presently so little of this industry                                                               
in the state, and this  limited knowledge could result in leaving                                                               
the state on the short end.                                                                                                     
                                                                                                                                
1:48:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  inquired  whether taxes  on  natural  gas                                                               
liquids (NGLs) are oil taxes or gas taxes.                                                                                      
                                                                                                                                
MR. BULLOCK said he is unsure.                                                                                                  
                                                                                                                                
KEVIN  BANKS, Director,  Division  of Oil  &  Gas, Department  of                                                               
Natural Resources, deferred to the Department of Revenue.                                                                       
                                                                                                                                
LENNIE   DEES,   Audit   Master,  Tax-Production   Audit   Group,                                                               
Department of  Revenue, stated that,  under statute,  natural gas                                                               
liquids are taxed as oil.                                                                                                       
                                                                                                                                
CO-CHAIR NEUMAN held over HB 217.                                                                                               
                                                                                                                              
1:51:13 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 1:51 p.m. to 1:52 p.m.                                                                       
                                                                                                                                
SJR 16-OFFSHORE OIL & GAS REVENUE                                                                                             
                                                                                                                                
1:51:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN announced  that the next order of  business is CS                                                               
FOR SENATE  JOINT RESOLUTION NO. 16(RES),  Expressing support for                                                               
responsible development of  the oil and gas  resources in federal                                                               
waters offshore  of Alaska's  coast as a  means to  ensure energy                                                               
independence,  security for  the nation,  and jobs  for Alaskans;                                                               
and  urging the  United States  Congress to  provide a  means for                                                               
consistently  sharing with  all coastal  energy-producing states,                                                               
on  an  ongoing  basis,  revenue   generated  from  oil  and  gas                                                               
development on the outer continental  shelf, to ensure that those                                                               
states  develop, support,  and maintain  necessary infrastructure                                                               
and preserve environmental integrity.                                                                                           
                                                                                                                                
1:51:53 PM                                                                                                                    
                                                                                                                                
MICHELLE SYDEMAN, Staff, Senator  Bill Wielechowski, Alaska State                                                               
Legislature, introduced SJR 16 on  behalf of the Senate Resources                                                               
Standing  Committee,  sponsor,  which is  co-chaired  by  Senator                                                               
Wielechowski.    She  paraphrased   from  the  following  written                                                               
statement [original punctuation provided]:                                                                                      
                                                                                                                                
     SJR  16 expresses  support for  responsible development                                                                    
     of  the oil  and gas  resources in  federal waters  off                                                                    
     Alaska coast. It also urges  Congress to provide Alaska                                                                    
     with a fair  share of federal revenue from  oil and gas                                                                    
     leasing and development in federal waters.                                                                                 
                                                                                                                                
     Under current law, Alaska  receives little revenue from                                                                    
     oil and  gas leasing  and development that  occurs more                                                                    
     than six miles  off our coast. This  contrasts with how                                                                    
     other   states,   including   Louisiana,   Mississippi,                                                                    
     Alabama and Texas, are treated.  Under the 2006 Gulf of                                                                    
     Mexico Energy  Security Act, these states  receive 37.5                                                                    
     percent of  revenues from  newly leased  federal waters                                                                    
     off their  coasts. This new  law is expected  to direct                                                                    
     more than $13 billion to  Louisiana alone over the next                                                                    
     three decades.                                                                                                             
                                                                                                                                
     Alaska deserves to be treated  in the same way as other                                                                    
     states   that  contribute   to   our  nation's   energy                                                                    
     security.  Like other  energy-producing states,  Alaska                                                                    
     bears  the  costs  of   infrastructure  in  support  of                                                                    
     offshore  development, and  our  coastal resources  and                                                                    
     residents  bear the  impacts  of offshore  development.                                                                    
     Alaskans  deserves   to  share   in  the   benefits  of                                                                    
     production, just as we do its costs.                                                                                       
                                                                                                                                
     The federal Minerals  Management Service estimates that                                                                    
     there  could  be  as  much  a  55  billion  barrels  of                                                                    
     technically  recoverable  oil  and 280  trillion  cubic                                                                    
     feet  of  technically   recoverable  gas  off  Alaska's                                                                    
     coast. Last year companies bid  $2.6 billion for access                                                                    
     to tracts  in the  Chukchi Sea.  More than  1.4 million                                                                    
     acres off  Alaska's coast have  already been  leased by                                                                    
     the  federal government.  The  Chukchi  Sea sale  could                                                                    
     result  in the  leasing  of an  additional 2.7  million                                                                    
     acres, providing  ongoing support for a  robust oil and                                                                    
     gas industry in Alaska.                                                                                                    
                                                                                                                                
     As  more  lands  off  Alaska's  coast  are  leased  for                                                                    
     offshore oil production, we need  to ensure that Alaska                                                                    
     gets its  fair share  of the  benefits of  that leasing                                                                    
     and production. It's time  Congress treated all coastal                                                                    
     states   equally  and   fairly.  Please   join  me   in                                                                    
     supporting SJR 16.                                                                                                         
                                                                                                                                
MS. SYDEMAN urged that SJR 16  be considered quickly so it can be                                                               
sent  to U.S.  Interior  Secretary  Ken Salazar  while  he is  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
1:54:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN,  in regard to the  term responsible development,                                                               
asked  for  Ms.  Sydeman's  definition of  the  word  responsible                                                               
because it seems to be different for everybody.                                                                                 
                                                                                                                                
MS.  SYDEMAN related  that  it  is a  word  the Senate  Resources                                                               
Standing Committee adopted by  recommendation of Senator Huggins.                                                               
She said  she thinks  it is in  the eye of  the beholder,  and to                                                               
some  extent by  passing  this resolution  without a  definition,                                                               
which probably  would be difficult to  develop, it is left  up to                                                               
Secretary Salazar and others to interpret.                                                                                      
                                                                                                                                
CO-CHAIR NEUMAN clarified  that it is CSSJR  16(RES), labeled 26-                                                               
LS0753\S (Version S), that is before the committee.                                                                             
                                                                                                                                
1:55:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that  at a  2006 energy  summit                                                               
some U.S. Senators strongly opposed  Alaska being included in the                                                               
[2006 Gulf  of Mexico Energy  Security Act].   He asked  what the                                                               
historic perspective is from that happening.                                                                                    
                                                                                                                                
MS. SYDEMAN  responded that U.S.  Senator Jeff Bingaman  from New                                                               
Mexico was  one of  the senators  expressing objections,  but she                                                               
does  not know  the history.   She  related that  last week  U.S.                                                               
Senator  Begich and  U.S. Senator  Landrieu from  Louisiana tried                                                               
again  unsuccessfully  to get  Alaska  included  in this  revenue                                                               
sharing.  Thus, she acknowledged, it is an uphill battle.                                                                       
                                                                                                                                
1:56:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  closed public testimony after  ascertaining that                                                               
no one wished to testify.                                                                                                       
                                                                                                                                
REPRESENTATIVE  EDGMON  moved  to  report CSSJR  16(RES)  out  of                                                               
committee with  individual recommendations and zero  fiscal note.                                                               
There being no  objection, CSSJR 16(RES) was reported  out of the                                                               
House Resources Standing Committee.                                                                                             
                                                                                                                                
The committee took an at-ease from 1:58 p.m. to 1:59 p.m.                                                                       
                                                                                                                                
HJR 33-RESTART COOK INLET PRODUCTION                                                                                          
                                                                                                                                
1:58:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN announced  that the  next order  of business  is                                                               
HOUSE JOINT  RESOLUTION NO.  33, Urging  immediate action  by the                                                               
governor,  the Alaska  Congressional  delegation,  and state  and                                                               
federal agencies  to assist in  the restart of oil  production in                                                               
Cook Inlet that was affected by the eruption of Mt. Redoubt.                                                                    
                                                                                                                                
1:59:04 PM                                                                                                                    
                                                                                                                                
JENNIFER SENETTE, Staff, Representative  Kurt Olson, Alaska State                                                               
Legislature,  introduced  HJR  33  on  behalf  of  Representative                                                               
Olson, sponsor.   She  explained that HJR  33 urges  the governor                                                               
and state  and federal agencies to  assist in the restart  of oil                                                               
production in  the Cook Inlet  that was affected by  the eruption                                                               
of Mt.  Redoubt.   The March  22, 2009,  eruption of  Mt. Redoubt                                                               
shut down the Drift River  Oil Terminal, halting oil transfers to                                                               
the terminal  from intermediate facilities  at "Trading  Bay" and                                                               
"Granite  Point",  as well  as  halting  oil transfers  from  the                                                               
terminal  to   [Tesoro  Alaska's  Kenai  refinery   (Tesoro)]  in                                                               
Nikiski.   This is an economic  issue that is important  not only                                                               
to the Kenai area, but the entire state, she pointed out.                                                                       
                                                                                                                                
MS.  SENETTE  said  closure  of   the  Drift  River  facility  is                                                               
impacting  production throughout  the  Cook  Inlet Basin  because                                                               
crude that  used to go to  the Drift River Oil  Terminal must now                                                               
be stored on platforms which have  a finite storage capacity.  As                                                               
the shutdown  has gone on,  platform storage has become  in short                                                               
supply,  requiring the  platforms to  shut their  wells.   If the                                                               
shutdown continues,  the Tesoro refinery  will be forced  to find                                                               
an oil supply  from somewhere else.  In addition,  the old age of                                                               
the Cook  Inlet wells makes  them very difficult to  restart once                                                               
shut down.   Because it  is expensive  and time consuming  to get                                                               
these  old   wells  re-started,   their  closure   today  affects                                                               
production tomorrow.                                                                                                            
                                                                                                                                
2:02:40 PM                                                                                                                    
                                                                                                                                
MS. SENETTE noted that a  further complication is the drawdown of                                                               
the Drift River  storage tanks since the  eruption.  Transferring                                                               
millions of  gallons of oil  from storage  requires re-ballasting                                                               
of the tanks, which has been  done with sea water, she continued.                                                               
Mixing sea  water with the remainder  oil in the tanks  creates a                                                               
corrosive material that  can potentially damage the  tanks.  This                                                               
material must be removed before oil  can be returned to the tanks                                                               
and will  take months, at great  expense, to do.   This effect on                                                               
current and future  oil production is especially a  problem for a                                                               
region and  state that  depend so heavily  on oil  production, as                                                               
well as for all of the workers in this industry.                                                                                
                                                                                                                                
REPRESENTATIVE OLSON added that the  oil being talked about could                                                               
be as  much as 20-25 percent  of what is going  into "Tesoro" and                                                               
"Tesoro"  will  replace  it  with  either  Trans-Alaska  Pipeline                                                               
System  (TAPS) oil  or  Indonesian spot  market  oil, neither  of                                                               
which is  of the same  quality as Cook  Inlet oil and  which will                                                               
impact the price.                                                                                                               
                                                                                                                                
2:06:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON,  in response to Co-Chair  Neuman, explained                                                               
that  the  Tesoro  refinery  originally  operated  on  about  100                                                               
percent Cook Inlet oil and this  oil is not coming back nearly as                                                               
fast as it  is needed for the  plant or the state.   The TAPS oil                                                               
ends up  with a waste product  that Tesoro ships out  of state at                                                               
additional expense for asphalt and other uses.                                                                                  
                                                                                                                                
CO-CHAIR  NEUMAN understood  that  Cook Inlet  production is  now                                                               
down to 15,000-20,000 barrels a day.                                                                                            
                                                                                                                                
2:07:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  inquired  whether  something  happens                                                               
structurally to the field when it is shut down.                                                                                 
                                                                                                                                
KEVIN  BANKS, Director,  Division  of Oil  &  Gas, Department  of                                                               
Natural Resources, explained  that sea water was  pumped into two                                                               
of  the Drift  River Oil  Terminal's active  storage tanks  which                                                               
contaminated the  oil remaining in  the tanks.  Before  the tanks                                                               
can be returned to service they  must be drained of the sea water                                                               
and oil mixture  and cleaned.  The contaminated  oil will require                                                               
treatment before it can be used in  a refinery, but he said he is                                                               
unsure  whether  such  treatment   facilities  are  available  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR. BANKS, in regard to  the first whereas and volcanic activity,                                                               
pointed  out  that  the  first   Mt.  Redoubt  volcanic  eruption                                                               
occurred on  March 22, 2009,  but the Alaska  Volcano Observatory                                                               
reported increasing  volcanic unrest as early  as September 2008.                                                               
He said the  committee may therefore want to  consider a revision                                                               
to this part of the resolution.                                                                                                 
                                                                                                                                
REPRESENTATIVE OLSON agreed.                                                                                                    
                                                                                                                                
2:09:40 PM                                                                                                                    
                                                                                                                                
MS. SENETTE, in response to  Representative Kawasaki, stated that                                                               
the Drift River  facility is operated by the  Cook Inlet Pipeline                                                               
Company and owned by Chevron and Pacific Energy Resources, Ltd.                                                                 
                                                                                                                                
REPRESENTATIVE  KAWASAKI asked  whether  the  storage tanks  were                                                               
drawn down in response to the  March 22, 2009, eruption or during                                                               
the period of increased activity before that.                                                                                   
                                                                                                                                
MS. SENETTE said  she believes the drawdown of  the storage tanks                                                               
happened only after the first eruption on March 22.                                                                             
                                                                                                                                
2:10:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI, in  relation  to HJR  33's request  for                                                               
immediate action by  the governor and others,  inquired what this                                                               
action would be.                                                                                                                
                                                                                                                                
REPRESENTATIVE OLSON said  the resolution is asking  for any kind                                                               
of expedited  help that is within  reason and legal, such  as any                                                               
permits that will  be needed.  In further  response, he explained                                                               
that permission  will be needed  to start making repairs,  do the                                                               
work, draw  off the salt  water and  oil that are  mixed, inspect                                                               
the tanks  and Drift River facility  to certify that they  can be                                                               
utilized again without any contaminations  to the Cook Inlet, and                                                               
ascertain that the dikes are still able to provide containment.                                                                 
                                                                                                                                
CO-CHAIR NEUMAN  added that,  coupled with  the close  of [Agrium                                                               
Inc.'s Kenai Nitrogen Operations plant  (Agrium)], this is a huge                                                               
issue for the Kenai Peninsula.                                                                                                  
                                                                                                                                
2:13:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TUCK understood  the  urgency  and asked  whether                                                               
there  is   any  indication  that  the   governor,  congressional                                                               
delegation,  U.S. Congress,  and state  and federal  agencies are                                                               
not looking  at the  same urgency and  will instead  be hindering                                                               
this in some way.                                                                                                               
                                                                                                                                
REPRESENTATIVE  OLSON  said  he   believes  the  Kenai  Peninsula                                                               
Borough  is  putting in  a  request.    In further  response,  he                                                               
explained that the request is a declaration of emergency.                                                                       
                                                                                                                                
2:14:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON   proposed    conceptual   language   for                                                               
discussion  later:    [page  2],  line 19,  at  the  end  of  the                                                               
sentence,  add  "after  the current  eruption  cycle  concludes."                                                               
This would  indicate that the  legislature is not trying  to urge                                                               
people  to  go into  an  unsafe  area,  he  explained.   He  then                                                               
inquired whether  immediate action  to assist  in the  restart of                                                               
oil production  in Cook Inlet  would include a pipeline  from the                                                               
platforms  to  the  Kenai  Peninsula, should  that  be  the  most                                                               
advantageous way to restart those facilities.                                                                                   
                                                                                                                                
REPRESENTATIVE OLSON responded that he does not know.                                                                           
                                                                                                                                
MR. BANKS said  he supposes it would be possible  and feasible to                                                               
build a pipeline across the inlet as  there used to be one in the                                                               
past.   A pipeline would  mean that  the oil production  from the                                                               
west  side  would be  directed  toward  the Tesoro  refinery,  he                                                               
added, which could possibly be a problem for Chevron.                                                                           
                                                                                                                                
2:16:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked what  the difference is  between the                                                               
produced water  that comes up  with the oil  in the well  and the                                                               
ballast water and oil mixture in the Drift River storage tanks.                                                                 
                                                                                                                                
MR. BANKS  replied that two  storage tanks have oil  and seawater                                                               
in them now  for ballast, and the other tanks  are empty and open                                                               
so that water  could get into them if flooding  occurred and they                                                               
would  not float.    The mixture  of oil  and  produced water  is                                                               
treated   upstream  of   the  terminal,   either  in   production                                                               
facilities  near  the  platforms  onshore  or  on  the  platforms                                                               
themselves.   Thus, the  oil that  is moved  down the  Cook Inlet                                                               
pipeline to the terminal is pipeline ready, saleable crude.                                                                     
                                                                                                                                
REPRESENTATIVE OLSON  said he believes  the old "Amoco  line" was                                                               
shut down  with the  intention of never  bringing it  back online                                                               
again.                                                                                                                          
                                                                                                                                
MR. BANKS interjected correct.                                                                                                  
                                                                                                                                
REPRESENTATIVE  OLSON   continued,  saying  that   bringing  this                                                               
pipeline back online would not be wanted.                                                                                       
                                                                                                                                
2:18:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether  there are  protocols in                                                               
place for actions that the Drift  River facility must take in the                                                               
face of volcanic activity.                                                                                                      
                                                                                                                                
MR. BANKS said  he is unsure what kind of  plans or protocols are                                                               
in place,  but he  knows there are  contingency plans  filed with                                                               
the Department  of Environmental  Conservation (DEC).   Following                                                               
the 1989-1990  volcanic activities, Chevron made  improvements to                                                               
the facility to raise the tertiary dikes around the terminal.                                                                   
                                                                                                                                
REPRESENTATIVE OLSON  added that  there are  plans in  place, and                                                               
the plan that attracted the  most attention was keeping the tanks                                                               
over half  full in order to  keep them from floating  away should                                                               
there be a major leak in the dikes.                                                                                             
                                                                                                                                
REPRESENTATIVE  EDGMON recognized  the seriousness  of the  issue                                                               
and inquired whether the sponsor plans  to get HJR 33 through the                                                               
whole  process now  or settle  for  a letter  that members  could                                                               
sign.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  OLSON responded  that  his intent  is  to get  it                                                               
through with Representative Seaton's verbiage.                                                                                  
                                                                                                                                
2:20:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  inquired  as  to  which  agencies  were                                                               
involved in forcing the shutdown.                                                                                               
                                                                                                                                
MR. BANKS explained that the  decisions about the Drift River Oil                                                               
Terminal over  the last couple  weeks, including the  decision to                                                               
shut it  down, were made by  the members of the  Unified Command,                                                               
which  are the  U.S. Coast  Guard, DEC,  and the  leadership from                                                               
Cook   Inlet   Pipeline  Company.      He   clarified  that   the                                                               
aforementioned  contingency plans  on  file with  DEC are  normal                                                               
course-of-business  oil  spill  contingency   plans.    The  U.S.                                                               
Department of  Transportation has  jurisdiction on  the pipelines                                                               
that  go  into  the  terminal   and  the  U.S.  Coast  Guard  has                                                               
jurisdiction on the Christy Lee  Platform and the flow lines from                                                               
the terminal out to that loading platform.                                                                                      
                                                                                                                                
2:22:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI asked whether  the Unified Command forced                                                               
the closure or suggested the closure.                                                                                           
                                                                                                                                
MR. BANKS replied  that the closure was through  agreement by the                                                               
Unified Command's three bodies.  As  the owner of the "Cook Inlet                                                               
Pipeline terminal", Chevron agreed to those provisions.                                                                         
                                                                                                                                
REPRESENTATIVE OLSON  noted that  he, Representatives  Seaton and                                                               
Chenault,  and   Senators  Waggoner   and  Stevens  are   on  the                                                               
distribution list  and receive emails  several times a  week, and                                                               
sometimes several times a day, about what is being done.                                                                        
                                                                                                                                
CO-CHAIR  NEUMAN  requested  that  this  information  go  to  all                                                               
committee members.  He opened public testimony on HJR 33.                                                                       
                                                                                                                                
2:23:47 PM                                                                                                                    
                                                                                                                                
JACK WILES, Kachemak Bay  Conservation Society, cautioned members                                                               
to take a  more thorough analysis of the situation  because it is                                                               
not as  simple as  it seems  in HJR  33.   For example,  the last                                                               
eruption happened  during what was  considered to be a  low level                                                               
of volcanic  activity.  Workers  onsite when the  volcano erupted                                                               
for  35 minutes  had to  be placed  in a  safe building  and then                                                               
evacuated.   He  related  that  at a  recent  public hearing  the                                                               
Unified Command  said the top  priority is health and  safety and                                                               
the second  priority is  the environment.   While  he appreciated                                                               
the  economic impact  of  oil  production, he  said  what is  not                                                               
mentioned  in HJR  33 is  the significant  economic impact  of an                                                               
environmental  disaster  that  could  occur  from  a  spill.    A                                                               
tremendous amount  of sediment  load has  come down  Drift River,                                                               
which can  be seen in a  recent aerial photo.   The river channel                                                               
is very unpredictable, with the  latest channel right next to and                                                               
threatening  the facility.    He agreed  that  shutting down  the                                                               
terminal  was a  wise  move  and pointed  out  that  it is  still                                                               
precarious with 2.5 million gallons of oil in the tanks.                                                                        
                                                                                                                                
MR. WILES  urged that  HJR 33  be tabled  until testimony  can be                                                               
received from the Unified Command  or, as an alternative, amended                                                               
on  page 2,  line 19,  to include  wording that  says to  examine                                                               
alternative technology to decommission the  tanks and look at the                                                               
feasibility of increased storage  in other locations or platforms                                                               
or to look at the existing pipeline.   If the directive is to put                                                               
the tank  farm back  into production, the  question that  must be                                                               
asked  is, Where  is the  risk  assessment and  who assumes  that                                                               
risk?                                                                                                                           
                                                                                                                                
2:27:17 PM                                                                                                                    
                                                                                                                                
ROBERT ARCHIBALD, Kachemak Bay Conservation  Society, said he has                                                               
worked in  that Cook Inlet  area since  1965 and the  Drift River                                                               
Oil Terminal has  been dodging the bullet since  its inception 42                                                               
years  ago.   He  commended  both  the  Unified Command  for  its                                                               
improved communication  with the public  and the people  who went                                                               
to the  facility to  pull down the  tanks.  He  said there  is no                                                               
capability for  removing the  2.5 million  gallons of  oil sludge                                                               
still  remaining in  the tanks  in  the event  of a  catastrophic                                                               
flood and that  this is unacceptable.  Given that  it can take up                                                               
to six months to clean out  a tank, he asked whether the off-line                                                               
tanks would  have to  be used  should the  facility go  back into                                                               
use.  He urged that all  stakeholders in the inlet be involved in                                                               
the design of a new production  facility that is not located in a                                                               
floodplain of a volcanic river.                                                                                                 
                                                                                                                                
2:30:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN inquired  whether the  Drift River  Oil Terminal                                                               
goes through regular inspections to ensure its integrity.                                                                       
                                                                                                                                
MR.  BANKS  answered  that  he  thinks  the  U.S.  Department  of                                                               
Transportation  has  a  routine  schedule  of  inspections.    In                                                               
further  response,  he  noted that  routine  pressure  tests  and                                                               
equipment inspections  occurred prior  to the  terminal beginning                                                               
the pumping of oil to the tanker last week.                                                                                     
                                                                                                                                
2:31:21 PM                                                                                                                    
                                                                                                                                
MR. BANKS,  in response to Representative  Edgmon, explained that                                                               
the   Petroleum  Systems   Integrity  Office   (PSIO)  has   been                                                               
represented in the process of  the past several weeks.  Different                                                               
agencies have  jurisdictions over  the terminal and  the pipeline                                                               
feeding the terminal,  he continued.  Now and in  the future, the                                                               
PSIO  can provide  a coordinated  effort to  ensure there  are no                                                               
gaps  or overlaps  in how  the jurisdictions  work.   An incident                                                               
command  management process  has been  in place  and the  Unified                                                               
Command has been the decision-making  authority over the terminal                                                               
during this particular  incident, but it is not  a permanent kind                                                               
of management  structure.  Should  the volcano  settle, decisions                                                               
about  whether  to  mothball,  remove,  repair,  or  replace  the                                                               
terminal will be made by the  Cook Inlet Pipeline Company and the                                                               
permitting will  be done by  various agencies.  Having  a volcano                                                               
nearby will factor in to how those permits are awarded.                                                                         
                                                                                                                                
2:33:58 PM                                                                                                                    
                                                                                                                                
ELISE WOLF  urged the Drift  River Oil Terminal not  be restarted                                                               
and  encouraged  that  a pipeline  instead  be  constructed  from                                                               
Granite Point  to the east  side.  She  argued that HJR  33 would                                                               
work to  usurp the authority  of the  Unified Command.   She said                                                               
she thinks  HJR 33  is inappropriate  legislation because  if the                                                               
committee was qualified  to be an oversight agency  it would have                                                               
answers to  what the  contingency plans are.   She  proposed that                                                               
instead there be legislation requiring  Chevron to pay for all of                                                               
the workers who have been laid  off and any economic impacts that                                                               
might result from the items listed  in the whereas clauses of the                                                               
resolution.  Chevron has had 42  years to realize that a terminal                                                               
and tanks at the  base of a volcano are a bad idea  and a risk to                                                               
other industries in  the Cook Inlet.  There is  no mention in HJR
33 of the  economic impact of fishing and tourism  and what would                                                               
happen if  these industries  were impacted by  an oil  spill, she                                                               
continued.  This reeks of trying  to find ways to skirt oversight                                                               
and mitigation plans, she charged.                                                                                              
                                                                                                                                
2:38:46 PM                                                                                                                    
                                                                                                                                
WHITNEY LOWE  offered his  belief that  when deciding  whether to                                                               
shut  the   Drift  River  Oil   Terminal,  the   Unified  Command                                                               
considered  the significant  economic impacts  that would  result                                                               
and determined  that the  workers' safety and  the safety  of the                                                               
environment were potential enough  problems to warrant closing of                                                               
the  facility.   It cannot  be  guaranteed right  now that  those                                                               
potential dangers  have dissipated,  he argued, and  it therefore                                                               
seems shortsighted and inappropriate to  now determine it is time                                                               
to re-open  the terminal; the  potential long-term costs  of such                                                               
an  action  must be  looked  at.   He  supported  the  idea of  a                                                               
pipeline across  the east  side so the  terminal could  be closed                                                               
and  agreed  with  Representative  Seaton's  proposed  conceptual                                                               
amendment.                                                                                                                      
                                                                                                                                
CO-CHAIR  NEUMAN closed  public  testimony.   He  said he  thinks                                                               
there are  some members  of the public  and the  legislature that                                                               
would  not  mind seeing  the  words  "that  was affected  by  the                                                               
eruption of  Mt. Redoubt"  taken out  [from page  2, line  19] in                                                               
order to get some production of Cook Inlet going.                                                                               
                                                                                                                                
2:41:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  said he would like  to take HJR 33  back so                                                               
he  can incorporate  the amendments  suggested by  Representative                                                               
Seaton and  Mr. Banks  into a committee  substitute.   He pointed                                                               
out that the  Drift River Oil Terminal has been  in that location                                                               
for 42  years and  he does not  believe it has  ever had  a major                                                               
leak or spill.                                                                                                                  
                                                                                                                                
CO-CHAIR NEUMAN asked  whether there have been  any safety issues                                                               
at the Drift River facility.                                                                                                    
                                                                                                                                
MR. BANKS said he does not know; he deferred to DEC.                                                                            
                                                                                                                                
CO-CHAIR NEUMAN requested  the sponsor to ask DEC to  come to the                                                               
next hearing on HJR 33 to answer this question.                                                                                 
                                                                                                                                
2:42:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  requested  that  someone  from  Unified                                                               
Command also attend the hearing.                                                                                                
                                                                                                                                
REPRESENTATIVE  OLSON offered  to get  copies to  members of  the                                                               
most recent communications from the Unified Command.                                                                            
                                                                                                                                
CO-CHAIR NEUMAN held over HJR 33.                                                                                               
                                                                                                                                
2:43:21 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:43 p.m.                                                                 

Document Name Date/Time Subjects
HB 163 04.13.09 Leg Legal Memo.pdf HRES 4/13/2009 1:00:00 PM
HB 163
CSHB163(RES) work draft.pdf HRES 4/13/2009 1:00:00 PM
HB 163
HB 163 Amendment 4.13.09.pdf HRES 4/13/2009 1:00:00 PM
HB 163
HJR 33.pdf HRES 4/13/2009 1:00:00 PM
HJR 33
HB 217.pdf HRES 4/13/2009 1:00:00 PM
HB 217
HJR 33 packet.pdf HRES 4/13/2009 1:00:00 PM
HJR 33
SJR 16 packet.pdf HRES 4/13/2009 1:00:00 PM
SJR 16