Legislature(2007 - 2008)SENATE FINANCE 532
04/25/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 25, 2007
9:04 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:04:15 AM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Joe Thomas
Senator Kim Elton
Senator Fred Dyson
Senator Donny Olson
Also Attending: MARCIA DAVIS, Deputy Commissioner, Department
of Revenue; PATRICK GALVIN, Commissioner, Department of Revenue;
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 104-NATURAL GAS PIPELINE PROJECT
The Committee heard from the Department of Revenue and the
Department of Natural Resources. The bill was held in Committee.
9:06:04 AM
CS FOR SENATE BILL NO. 104(JUD)
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments;
and providing for an effective date."
This was the forth hearing for this bill in the Senate Finance
Committee. The Committee continued hearing a sectional analysis
of Chapter 90, added by Section 1 of the legislation.
9:06:28 AM
Chapter 90. Alaska Gasline Inducement Act
…
Article 2. Alaska Gasline Inducement Act License.
…
Section 43.90.200. Certification by regulatory
authority and project sanction. (page 14, line 9)
MARCIA DAVIS, Deputy Commissioner, Department of Revenue,
characterized this section as "the stick" that provides another
deadline that the license holder must meet. She reminded the
Committee of the "one firm deadline" that would require the
holder of the Alaska Gasline Inducement Act (AGIA) license to
hold an open season to obtain commitments to ship natural gas
through the proposed pipeline within 36 months from the date the
license was issued. Additionally, the licensee's AGIA
application must contain a "date certain" in which the license
would submit its request for certification from the Federal
Energy Regulatory Commission (FERC).
9:07:08 AM
Ms. Davis explained that Section 43.90.200(a) on page 14, lines
10 through 14, would require that the applicant, once it
receives a FERC certificate, must "actually accept the
certificate and go forward." She initially deemed this provision
"odd" as she assumed that once a party applied for a FERC
certificate, it would accept the awarded certificate. However,
she learned that in the consideration process, FERC would
commonly impose certain conditions requiring the applicant to
change specific design aspects or perform other work. Objection
and requests for reconsideration of these conditions by the
applicant was not infrequent.
Ms. Davis stated that once the reconsideration process was
completed, FERC "is done with you and it's as good as you're
gonna get it." In this instance, an applicant could maintain its
objection and file a challenge with the U.S. District Court of
Appeals, and subsequently with the U.S. Supreme Court, and which
could result in a lengthily process.
9:08:35 AM
Ms. Davis relayed that the provision of subsection (a) "struck
balance" to stipulate that the applicant must accept the
certificate once all administrative appeals were exhausted.
9:08:50 AM
Senator Elton asked the consequences if the licensee refused to
comply with the provision of subsection (a).
9:08:59 AM
Ms. Davis responded that the party would have violated a term of
its AGIA license and the State would activate the default and
violation provisions.
9:09:17 AM
Senator Elton understood that the most stringent violation
provision would allow the State to attempt to recover any
portion of the $500 million incentive payments made to date.
Ms. Davis added that the license could be revoked and reissued
to a different party and the property and data collected could
be seized.
9:09:41 AM
Senator Elton asked if this would require a court ruling.
Ms. Davis answered that ultimately the matter would be decided
in court; however only after a 90-day informal "talk-it-through"
process between the Executive Branch and the licensee failed to
bring consensus and resulted in the State revoking the license.
9:10:08 AM
Co-Chair Stedman asked the commonality of provisions similar to
the stipulation that the licensee "shall accept the certificate"
in business relationships involving the FERC.
9:10:35 AM
Ms. Davis was unsure and indicated she would provide a response
at a later time.
9:11:26 AM
Ms. Davis continued the sectional analysis summarizing that
Section 43.90.200(b) and (c) related to the obligation of the
applicant to proceed and sanction the pipeline project.
"Sanction" was defined in AGIA as the commitment by contract of
$1 billion and "moving toward the pipeline" and pertains to the
construction phase.
9:11:52 AM
Ms. Davis explained that subsection (b) related to the
obligation of the applicant if it had credit support to sanction
the project within one year of receipt of the FERC certificate.
Ownership of the gas reserves, commitments to transport gas, and
private or government financing necessary to proceed with the
project would be considered "credit support".
9:12:28 AM
Ms. Davis noted subsection (c) would require that in the event
the licensee did not have credit support, the State would allow
the license up to five years to obtain that support. Therefore,
regardless of the financial circumstances, the licensee would be
required to sanction the project within five years.
9:12:57 AM
Co-Chair Stedman opined that this section could potentially be
problematic to the State given the projected revenue declines.
He asked if the Department had considered the impact of this and
whether a plan was devised to avoid a situation in which the
Alaska Permanent Fund or other funding sources would be needed
to address a revenue and expenditures imbalance.
9:13:37 AM
Ms. Davis deemed revenue planning over the next 15 years as
"probably the most important issue facing the State". She
cautioned as follows.
In terms of assessing where the potential cash flows are
going to come, obviously … even if … a project were
sanctioned within one year of having received the
certificate the State cannot envision cash flows actually
coming to the State for the pipeline construction period of
time, which has been estimated anywhere from seven to ten
years. … It obviously depends upon which project is
selected. Obviously the revenues will depend upon what
project is selected.
But clearly, once an application is selected and
identified, the revenue flow that could be expected from
that project is going to have to be mapped out and the
Department of Revenue will be doing so. That is going to
give clearer definition to where revenue gaps are and what
measures or means are going to need to be taken to address
that gap.
9:14:41 AM
Co-Chair Stedman asked why a period of five years was selected,
as opposed to seven, three or other period of time.
9:14:47 AM
Ms. Davis gave the following response.
Five years was identified as a period of time that would
enable a reasonably prudent pipeline company that has the
FERC certificate in hand to address the likely problems
that we could envision that would have impaired or not
enabled a pipeline company to have financing in place by
the time a certificate were issued.
Clearly the pipeco [pipeline company] would have been
working on financing long before having the certificate in
hand. Namely at the first stage addressing their initial
open season because clearly that's their first and best
shot at lining up financing for the project in the form of
firm transportation commitments.
If they have not succeeded in gaining sufficient firm
transportation commitments at that open season, they're
going to be going through and working through whatever
technical issues, whatever economic issues are facing them
in terms of moving toward that FERC certificate.
As they work through that process - again we try to
calculate how long it takes to do reasonable field work,
reasonable engineering work, in satisfying what shippers'
needs would be to lining that up. That's one path. The
other parallel path is the pathway for addressing obtaining
the federal loan guarantees if for some reason they were
unable to obtain the proper firm transportation commitments
for reasons beyond their control and that were not
indicative of an uneconomic project. They would be pursuing
the federal loan guarantee.
So again, we sort of mapped out the procedural process of
helping - that it would take a reasonably prudent pipeco to
work along that pathway and we felt that five years gave
them enough time to reasonably have exhausted those means
of establishing loan support, credit support for the
project.
We wanted to pick something that wasn't so short that a
pipeline company would look at the risk of having put in
all the money, because that's what all the money is getting
the FERC certificate. If you've got the FERC certificate
that means this company has probably expended anywhere from
$500 million to $1 billion. That's a lot of money that
they've put at risk in the hope of getting the financial
support. So we wanted to stick with that partner for a
prudent period of time and we felt five years was the right
mark that we could at that point say everything that could
be done has been done and it's time to split up.
That's not to say we can't break it up sooner because
certainly the State at any point in the juncture could look
at the project and say this is an uneconomic project, we
need to cut it right now - cut our losses - you walk, we
walk. Both parties could pursue that under the abandonment
clause, which would provide for arbitration to determine if
in fact the project's uneconomic.
9:17:49 AM
Co-Chair Stedman asked the cost of an abandonment to the State.
9:17:53 AM
Ms. Davis replied that the State's portion of a determination by
arbitration would be the cost of one and one-half arbitrators,
plus State experts to testify as to whether or not the project
was uneconomic. Typical litigation costs could be expected to
reach $200,000.
Co-Chair Stedman asked if "triple damages" would be included.
Ms. Davis answered this process would not activate triple
damages. "Triple damages" would pertain in the event the State
was to give preferential treatment to a competing project during
the period that the initial licensee was attempting to secure
credit support.
9:18:43 AM
Co-Chair Stedman assumed the Department would present a timeline
of "optimistic development schedule and a less optimistic
development schedule including the five year extension and the
potential revenue and expense are that the State going to be
facing along that timeline."
9:19:31 AM
Ms. Davis assured the Department would endeavor to provide this
information, as the Committee could benefit from knowing best
and worst case scenarios and the subsequent revenue impacts.
9:19:47 AM
Senator Thomas expressed concern that consideration would be
given to an application that proposed that the project might not
be sanctioned for five years. Given the time required to secure
a FERC certification, sanctioning could be up to eight years in
the future.
9:20:33 AM
Senator Elton assumed that any entity that invested the
significant funding into the project necessary to obtain a FERC
certificate would have already secured financing with "almost
100 percent certainty." Therefore, a five year allowance between
final certification and sanctioning of the project was
excessive. Instead two or three years would be a more
appropriate period of time and would be more beneficial to the
State.
9:21:39 AM
Ms. Davis responded that in considering the situation from the
standpoint of an applicant, the reasons that credit support
might not be achieved and methods to secure that support must be
identified. From the standpoint of the State, the alternatives
must be also considered in the event the licensee obtained FERC
certification but had yet to secure credit support.
Ms. Davis admitted that most likely just a few reasons would
justify the situation. One would be failure to attract shippers
to commit gas to the project because the potential shippers
either determined the project uneconomic for them or decided for
other reasons not to participate. If the commitment was
uneconomic from a shipper's perspective the argument for
abandonment would have been mostly proved and could be
determined within two years.
Ms. Davis stated that if the shippers failed to commit gas for
other reasons, alternative remedies "would need to be resorted
to" whether by the U.S. Congress, FERC, the "White House" or
another entity that "would have sway over the decision making
process of the shippers."
9:23:57 AM
Ms. Davis suggested that if the State determined to not engage
in the political aspects of this matter, alternative options
must be considered, such as revoking the license if the credit
support was not secured within one year of the issuance of the
final FERC certificate. In this event, the State must identify
other parties that could potentially undertake the project,
which could be the "holders of the gas".
9:24:41 AM
Ms. Davis cautioned of one challenge for the party that held an
asset and that was required to develop that asset within a
defined period of time. Such a situation diminished the holder's
"bargaining position" with entities needed for the development
of the asset. A message would be given to the marketplace that
the asset holder would be "desperate" at a certain period of
time and subsequently, potential shippers in the AGIA case would
be prudent to wait until the deadline neared. The intent of AGIA
was to ensure that the holder of the license would not be in a
position to be leveraged by the potential shippers.
Establishment of a shorter time period in which the licensee
must obtain credit support would cause the licensee to "look
pretty desperate" and cause a potential shipper to delay making
a commitment until the deadline was close and at that time
attempt to renegotiate terms to its advantage.
9:26:03 AM
Ms. Davis could not guarantee that the five year time period was
the best option because the matter was not "an exact science"
and given the "commercial factors at play" and the many "parties
that could influence that whole process". The process contains
multiple uncertainties.
9:26:36 AM
Senator Elton argued that the State would be best served if the
deadline was established at two years with an option that the
State could grant an extension in certain circumstances. A
situation should be avoided that could allow the licensee to
determine that a prolonged process would be in its best
interest. A timely process would be in the best interest of the
State.
9:27:46 AM
Ms. Davis acknowledged the option as possibly viable. The issue
would be whether a licensee holding a FERC certificate would
experience an urgency to secure financing if the time period was
shorter that was greater than the urgency already experienced
given the investment it made to date in achieving the FERC
certificate. She presumed that the financial "pressures" to
secure credit support would be "tremendous" and that the
pressure of a shorter time period would "pale in comparison".
Ms. Davis assented to consideration of a shorter time period,
but cautioned that an applicant would have to determine that it
would trust the State to grant an extension if certain
circumstances arose.
9:29:02 AM
Co-Chair Hoffman shared the concerns of Senator Elton and
Senator Thomas. In reviewing the State's "must haves", the first
stipulation was completion of a natural gas pipeline sooner
rather than later. However, this provision could have the
opposite consequence. It would favor applicants that did not
hold the gas resources.
Co-Chair Hoffman asserted he would negotiate a similar contract
differently and would not provide a five year "carte blanche"
"blanket timeframe". His contract would require assurances
during the process and would not delay the State's ability to
seek abandonment for five years. He would support extensions for
the circumstances Ms. Davis exampled. However, the contract must
include performance measures and time increments for those
measures to be achieved.
9:31:57 AM
Senator Huggins requested the witness describe a scenario to
demonstrate the project's status by a certain date. Assuming
that an AGIA license was issued in 2008, he recalled Department
testimony predicting that the licensee would apply for FERC
certification five years afterwards.
9:32:38 AM
Ms. Davis qualified that the assumption was based on the maximum
number of years the State would provide incentive payments. This
five year period was not definitive.
9:32:49 AM
Senator Huggins stated that if the full five year period in
which incentive payments were made was utilized, receipt of a
FERC certificate would occur in 2013.
Ms. Davis clarified that the actual date could be later because
the process to secure a FERC certificate could take up to two
years.
9:33:12 AM
Senator Huggins adjusted his calculation of the date of FERC
certification to 2015.
Senator Huggins next referenced documentation provided by the
Department outlining the "tremendous decrement" of billions of
dollars in net present value resulting from project delays.
9:33:52 AM
Ms. Davis informed that the licensee's "drop dead" date to
sanction the project would be 2020.
9:34:04 AM
Senator Huggins then asked the date of "first gas" when the
pipeline would begin production.
Ms. Davis replied that estimates predict that the construction
period would require eight to ten years, assuming that the
pipeline capacity would be 4.5 billion cubic feet (bcf).
9:34:43 AM
Senator Huggins concluded therefore that operation of the
pipeline could be as far away as 2030.
Ms. Davis affirmed.
9:34:47 AM
Senator Huggins commented that this was a sobering prospect
which "scares the heck out of me."
9:35:07 AM
Ms. Davis corrected her estimate of the pipeline construction to
be two to three years.
9:35:24 AM
PATRICK GALVIN, Commissioner, Department of Revenue, confirmed
that once all permits had been secured, industry representatives
have stated that the construction phase would require two to
three years.
9:35:45 AM
Co-Chair Stedman pointed out the necessary "lead time" to gather
materials and equipment.
Mr. Galvin emphasized that two to three years would be the
longest possible timeframe. The licensee would be expected to
undertake significant preparations while awaiting the FERC
certificate.
9:36:12 AM
Senator Huggins changed his calculation to reflect that
production through the pipeline would commence in the year 2023
at the latest. He returned to the date of a potential
unsuccessful open season in approximately 2011.
9:36:51 AM
Ms. Davis affirmed.
9:36:59 AM
Senator Huggins continued, noting this would be a "critical
juncture". Of the three pipeline companies that testified to the
committees that previously heard this bill, two indicated a
lesser concern with obtaining a FERC certificate than in
committing gas. A representative from the third company stated
exactly, "I can't answer that question." Senator Huggins pointed
out that none agreed to pursue a FERC certificate, which
concerned him. He questioned the State's concept that would
require the AGIA licensee to do so despite the companies'
assertions.
9:38:16 AM
Mr. Galvin asserted, "Continuing past an unsuccessful open
season to a FERC certificate is something that's in the State's
interest." He elaborated as follows.
We want to ensure that the project continues to move
forward. From the company's perspective, because these
particular companies are pipeline companies, they get
regulated set rate of return, they don't see the upside of
taking that risk. That's why within our "must haves" we
have to require them to move to the FERC certificate in
order to get them to do so. It's not that they would have
the option or that they would be given the choice at that
particular time of whether or not to do so, it's that as a
condition of accepting the license they have to agree to do
so.
9:39:04 AM
Senator Huggins understood. He stressed that this requirement
must be emphasized to the applicants. A penalty formula, equal
to that which the State would be subject to in the event the
State violated the exclusivity clause, must be levied for an
applicant's failure to pursue FERC certification. Current
language pertaining to the exclusivity clause would provide a
damage award of three times the amount of investment.
9:40:12 AM
Co-Chair Hoffman asked if the construction estimate of two to
three years includes completion of the pipeline to Chicago,
Illinois.
9:40:32 AM
Mr. Galvin corrected this estimate would entail completion of
the pipeline in Alberta, Canada.
9:40:39 AM
Co-Chair Hoffman recalled testimony given to the Committee
during the previous legislative session about the limited supply
of steel available. Estimates predict that the entire amount of
steel produced in one year worldwide would be needed to
construct the pipeline. However, competing projects would also
be attempting to secure steel supplies. He doubted that this
"mega" pipeline project could be completed in two years.
9:41:19 AM
Co-Chair Stedman asked the number of FERC certificates issued
for projects without credit support and the terms of those
certificates. The presentation on "opportunity costs" given to
the Committee at the previous hearing only included delays of
one to three years. He pointed out the following.
Roughly at seven dollar gas - three year delay you're
looking at about a $7 billion, and a five year delay you're
looking a $10 billion. That's one quarter of the permanent
fund. There's a huge opportunity cost that we're talking
about here with this delay and that's - we've not only got
the roughly $10 billion in opportunity costs over five
years, but we've got the issue that this Committee faces
every year in the operating budget trying to make ends meet
and run our State. It is of a concern when we get stretched
out in particularly if we're looking into the mid - going
from 2018 into 2025 or 2027.
Co-Chair Stedman requested a forecast of the opportunity costs
incurred from this delay.
9:43:14 AM
Mr. Galvin advised that opportunity costs must have "something
else" to be compared against. The suggestion that if the time
limit in which to secure credit support was reduced from five
years to one year makes an assumption that the project would be
successfully advanced in one year. However, it did not recognize
that the purpose of the five year limit was to "get them in the
door in the first place" and allow an entity the possibility of
building a pipeline. Potential AGIA applicants would not
participate given the risk involved in the expenditure of
significant funding to obtain FERC certification if time was not
permitted for the licensee to secure credit support. The
competition necessary to further the project would not be
forthcoming.
Mr. Galvin continued as follows.
By saying through some form of analysis that we can make a
choice between having the pipeline come in in 2016 versus
having it come in in 2020 - I can assure you that the 2016
is going to look a heck of a lot better. But it's a false
choice. It's not as though we're making a decision to say
let's have it come in in 2020 versus 2016; it's a question
of whether we are presenting reasonable terms so that we
can bring them in the door in the first place.
Mr. Galvin summarized that the Department would provide the
Committee with the State revenue forecast and expenditures
predicted for the timeframe. He impressed, "we will all see how
far underwater we're going to get". At that point, timeframes in
which a gas pipeline could be possible would be reviewed.
9:46:57 AM
Co-Chair Stedman understood the inability to predict the exact
date that the pipeline would begin production. However, the
issue was the State's risk exposure and if the date was to be
later than sooner, the Committee must be made aware of this. The
risk exposure of a scenario with no gas pipeline was known.
9:47:51 AM
Mr. Galvin stressed that this issue was recognized. The intent
of AGIA was to obtain a gas pipeline and as quickly as possible.
The question embedded in this discussion was whether a pipeline
could be completed sooner "by simply shrinking all the timelines
that we give to our applicant." The timelines could be
shortened, but the consequence would be that potential applicant
would decide against accepting the risk. The State would have
the ability to "pull the plug out" before a licensee would have
reasonable opportunity to benefit from its investment.
9:48:58 AM
Co-Chair Stedman spoke of amendments considered to this bill to
change the time periods of some provisions from 90 days to 60
days. This discussion involves five years. Time delay was an
issue that would affect cash flow. The Committee must have an
understanding of the risk exposure.
Co-Chair Stedman furthered on an interrelated issue pertaining
to the gas tax and the possibility that the first open season
was unsuccessful and other open seasons must be offered. He
deferred this topic to a future discussion relating to the
inducements.
9:50:40 AM
Senator Elton commented to his skepticism that a natural gas
pipeline could be completed in two to three years given the
changed regulatory environment from the time that the Trans
Alaska Pipeline System was constructed 30 years prior. He
requested an explanation of the reasoning for the projection.
Senator Elton next opined that the State could achieve some
control by requiring credit support within two years with an
opportunity for two one year extensions. He requested an
analysis of this "midway approach".
9:52:15 AM
Mr. Galvin qualified that the choice was not just whether to
provide for a two or five year time restriction. The proposed
five year period was not "magical". His statements had been in
response to the premise that a shorter deadline would result in
a sooner construction date. Instead, such a shorter deadline
could result in fewer applicants under AGIA.
9:53:11 AM
Co-Chair Hoffman concurred with Senator Elton's comments based
on the State's "must haves" of achieving a pipeline sooner. The
language of this provision must be "tightened up" specifically
to allow the State to "take control" during that time period
rather than allowing the licensee to make the decisions. The
licensee must be "pushed"; perimeters must be established and
assurances received to demonstrate that the project was
progressing.
Mr. Galvin agreed and relayed the intent to guarantee the
process would be "buttoned down". The licensee would not be
allowed to operate without oversight. Whether in the form of
formal deadlines or through other methods, the licensee would be
required to demonstrate its actions in furthering the project.
9:55:25 AM
Co-Chair Hoffman countered that such a guarantee was not
provided for in the provision of subsection (c). The language
should be specific.
9:55:45 AM
Mr. Galvin assured this issue would be addressed.
9:55:49 AM
Section 43.90.210. Amendment of or modification to the
project plan. (page 15, line 11)
Ms. Davis resumed her analysis of the bill and informed that
amendments had been made to the original language to include
three situations in which a project plan could be amended. An
improvement to the net present value of the project would be
justified, as well as a change necessitated by an order of the
Alaska Oil and Gas Conservation Commission (AOGCC), and a
situation resulting from unforeseen circumstances outside
control of the licensee. Additionally, this provision stipulated
that with an exception of a change required by the AOGCC, any
amendment to the project could not diminish the net present
value of the project to the State or the project's likelihood of
success.
9:57:04 AM
Section 43.90.220. Records, reports, conditions, and
audit requirements. (page 15, line 22)
Ms. Davis described this section as "the State's rights to
audit, inspect books, [and] compel information to be provided to
it both in hard copy and electronic format." She directed
attention to subsection (d) on page 16, lines 3 through 10,
which would grant the State the right to participate "as an
observer, in a room with the applicant's owners, equity members,
groups, at meetings" to monitor progress and ensure compliance
with the license provisions as well as statutes. This right
would terminate after commencement of commercial operations.
9:58:06 AM
Co-Chair Stedman returned to AS 43.90.210 in an attempt to
understand the concept of "the group that makes the proposal
that doesn't have any gas." He stated, "We run it through the
net present value model. How we do that, I don't know because
there's no gas to run through the model."
Ms. Davis interrupted to respond that assumptions would be made
in this situation.
9:58:37 AM
Co-Chair Stedman continued as follows.
So we make assumptions. That entity that doesn't have
commitments for gas prevails in the issuance of the
license; gets the license; moves forward. But economic
reality sets in and the gas expectations either due to tax
changes or some other issue, the revenue would go down to
the State, which would move the net present value down.
Co-Chair Stedman asked if in this instance the licensee would
not be in compliance.
9:59:12 AM
Ms. Davis explained that the State's analysis of the net present
value was addressed twice in this legislation. The net present
value "balanced with" the likelihood of success would be first
calculated during the initial selection period. Applications for
the AGIA license would be ranked at that time and a "winner"
would be selected. Once the license was granted, the project
would progress and encounter "whatever's going to happen
relative to costs of materials … what's happening with gas
commodity pricing, [and] … the world of taxes and royalties and
how they impact the mentality and the desires of its … producers
to want to ship gas on its pipeline."
Ms. Davis suggested that during that time period, if the State
determined that the project would not be economic to the State,
it could potentially also be determined to be uneconomic to the
licensee as well and an agreement could be reached to cease the
project. However, if one party disagreed with ceasing the
project the issue would be decided in arbitration. The
abandonment clause "focuses on" the ability of the shipper to
secure credit support and whether a shipper would "reasonably
want to ship on that pipeline."
10:00:57 AM
Ms. Davis posed an assumption that this process was undertaken
and neither party prevailed in the arbitration or that
abandonment was not considered, "the economy and the economics
of the project are what they are" and no opportunity would exist
to review the economics before the next phase of the process. In
the event a licensee was unable to secure credit support and
proceeded to obtain a FERC certificate, the issue would be
whether the license could sanction the project within the
allowed timeframe.
10:01:49 AM
Ms. Davis stressed that the provision of AS 43.90.210 would only
be activated in the event a party sought to amend the project
plan. She gave an unsuccessful open season as an example of a
reason a party could attempt to amend the project plan.
Amendments to the project could include construction of a
pipeline utilizing a smaller pipe size. The project could remain
economic, although with a lower net present value to the State.
If a determination was made that the change was necessary as a
result of changed circumstances beyond the licensee's control
and not reasonably foreseeable, the AOGCC could agree to that
change.
10:02:50 AM
Co-Chair Stedman asked if this would provide an opportunity for
the licensee that had no gas commitments to negotiate with the
producers then leverage the State.
10:03:04 AM
Ms. Davis answered "no", that this provision would require the
State to "consent" to whether it should proceed. This provision
also stipulated that a change to the project plan could not
diminish the net present value to the State.
10:04:01 AM
Ms. Davis repeated that Section 43.90.220 relates to the State's
right to monitor the licensee's activities in pursuing the
project.
10:04:14 AM
Section 43.90.230. License violations; damages. (page
16, line 14)
Ms. Davis stated that this provision listed violations and
damage allowances and outlined the resolution process. These
include conditions imposed in many other contracts for State
projects, such as prohibitions against violation of State
statues or misuse of funds. If a dispute to correct a violation
was not resolved in 90 days, the AOGCC could invoke certain
remedies, including suspension of disbursement or recuperation
of State funds contributed to the project, revocation of the
license with assignment of all project data surrendered or any
other remedies provided for by law. The provision was expanded
to include "in equity" as a potential remedy in the event "a
particular situation called for a specific performance."
10:05:28 AM
Section 43.90.240. Abandonment of project. (page 17,
line 17)
Ms. Davis reminded that this provision had been mentioned in
previous discussions. Abandonment of the project would occur at
the point the project was found to be uneconomic, either by
agreement of the State and the licensee or by arbitration. The
rules provided for by the American Arbitration Association had
been invoked for this section. This issue had been given
significant attention by the Senate Judiciary Committee and
improvements were made to the original language to ensure
"Alaska's state substance and procedural laws". Additionally,
this section would provide that each party would select one
arbitrator who in turn would select a third arbitrator.
Arbitration would be conducted by a panel of three members. All
arbitrators would be selected from the American Arbitration
Association roster.
10:06:30 AM
Ms. Davis pointed out that the language adopted by the Senate
Judiciary Committee was also utilized in an amendment to the
House of Representatives companion legislation. However, upon
later review conflict was identified in the provision of Section
43.90.240(d) on page 18, line 17 and 18, which would require the
party filing an appeal of a final arbitration determination to
provide the burden of proof. Alaska's Uniform Arbitration Act
established the procedures pertaining to which party was
obligated with the burden of proof. Although the language of
this bill was similar, concerns were expressed that it should
not be included in the AGIA bill. As a result, this subsection
was deleted from the House bill and should be removed from the
Senate version as well.
10:07:37 AM
Co-Chair Stedman took note of the matter.
10:07:45 AM
Ms. Davis stated that the language of AS 43.90.240(c) on page 18
lines 5 through 16 contained the standards the arbitrators would
apply to determine whether a project was uneconomic. To make the
determination the arbitrators would be required to find that the
licensee did not have credit support. Additionally, an
"objective standard", utilizing the assumption that the pipeline
would have "100 percent load factor using reasonable predicted
prices for the future applied to that gas volume", would be
applied to determine whether a "reasonable producer would ship
on that pipeline." These objectives would be considered to
determine if the project had a likelihood of success.
10:08:38 AM
Senator Elton questioned the definition of "uneconomic" in the
context of this legislation. Subsection (c)(1) stipulated
uneconomic as, "the project does not have credit support
sufficient to finance construction of the project…" He asked why
language similar to "can not get" was not instead utilized.
Because the licensee did not have the credit support did not
conclude that it could not obtain that support.
10:09:13 AM
Ms. Davis agreed that the language of (c)(1) was "clearly
pointing to the here and now." This provision considered the
status of credit support at the point in time of a request for
abandonment. The provision of subsection (c)(2) however,
addressed the issue in the event that a determination found a
reasonable likelihood that producers would ship gas on that
pipeline. This would provide proof that credit support was
obtainable.
Ms. Davis explained the intent to provide criteria that
reflected the subjective status of the licensee at the time of
arbitration as well as an objective standard to predict future
credit support.
Ms. Davis acknowledged that the point raised by Senator Elton
had been considered with the following conclusion reached.
Each time we looked at it we kept peeling the onion and
wanting to get to the core of what makes a project
objectively uneconomic. We eventually ended up with the
bottom line [of] whether there would be shippers to ship
gas because that ultimately influences whether financer are
going to step up and offer financing for the project.
Ms. Davis confirmed the need for an objective standard, but
stated that this would be achieved through the provision of
Section 43.90.240(c)(2).
10:10:46 AM
Section 43.90.250. Alaska Gasline Inducement Act
coordinator. (page 19, line 2)
Ms. Davis informed that the original language of this provision
would have required legislative confirmation of the person
appointed to this position by the governor. Legislative legal
counsel advised that legislative confirmation would violate the
Alaska Constitution article pertaining to separation of powers
of the three branches of State government. The Senate Judiciary
Committee chose to delete the legislative confirmation provision
from this section.
Ms. Davis stated that with the aforementioned exception, the
provision relating to the coordinator position was modeled after
the federal pipeline coordinator position. Ms. Davis had
provided Co-Chair Stedman a copy of the provisions relating to
the federal position.
10:11:42 AM
Co-Chair Stedman indicated he had received this information and
would distribute it to the Committee [copy on file].
10:11:48 AM
Senator Dyson understood from industry representatives that
possibly more than one pipeline project could be undertaken; one
utilizing the AGIA license and another as an independent
project. In such an instance, concern was expressed that the
AGIA-licensed project would have the advantage over the other
project through the assistance of a designated representative in
the Office of the Governor. The other project would not have the
benefit of "inside support." He asked if the Administration had
considered this possibility.
10:12:44 AM
Ms. Davis responded that this issue had been considered and that
the Administration intended to "incentivise" the AGIA process.
The coordinator and the assistance provided from that position
would be "as attractive as possible". The Administration
preferred to not have multiple projects. Rather the best project
should be undertaken, with that project operating under the AGIA
process. Therefore the maximum incentives would be provided to
encourage potential parties to participate in AGIA.
Ms. Davis qualified that the State, as a sovereign entity, had
an obligation, under federal law, to support and provide
guidance on matters including right-of-ways and permitting for
any project involving an interstate pipeline through its lands.
A State statute governing the Department of Natural Resources
was currently utilized for the Pebble Creek Mine operation and
other projects that allowed the Department to establish a "large
project coordination team" to facilitate the permitting process
for all State agencies. Although this effort was not conducted
by the Office of the Governor and did not provide "as explicit
directions to State agencies" as the proposed AGIA coordinator
position would, the process existed to accommodate an
alternative pipeline project.
10:14:53 AM
Senator Dyson commented that in the following two to three
years, the national energy supply and national security
situations could change significantly at which time an entity
that had decided to not apply for the AGIA license could
determine that a pipeline project had "huge economic potential".
Efforts by this entity should not be hindered by the
predisposition of the State in supporting the AGIA-licensed
party. He was unsure how to resolve this issue.
10:15:53 AM
Senator Huggins agreed with Senator Dyson and suggested that if
the coordination process administered within the Department of
Natural Resources would be sufficient for a non-AGIA licensed
project it should be acceptable for the AGIA project as well.
Otherwise, a second pipeline coordinator position should be
created within the Office of the Governor to assist with a
competing project. This competing project could also be
beneficial to the State and therefore assistance should be
provided for its benefit as well as the assistance provided for
the AGIA project.
10:16:54 AM
Ms. Davis shared that the original language of the license
assurance section would have only prohibited preferential tax,
royalty and monetary treatment for the AGIA licensed project.
The section deliberately did not provide for preferential
pipeline coordination or agency facilitation "that would
activate the damages clause" because the State's sovereign
duties to manage permits could not be conditioned on the
securitization of the AGIA license. However, facilitation of the
AGIA project in the form of the AGIA coordinator would benefit
the project. If another project were undertaken, an additional
pipeline coordination position could be created, provided that
the provisions of the assurance clause were complied with.
10:18:26 AM
Senator Huggins clarified the intent that the pipeline
coordinator position established under Sec. 43.90.250 would not
be "shared" with a competing non-AGIA project.
10:18:38 AM
Ms. Davis answered that the language of the section would
provide that the coordinator position would be applied to only
the AGIA-licensed project.
Senator Huggins asked if the provisions of this bill would
preclude future sharing of the coordinator.
Ms. Davis responded that the original version of the bill
contained no such preclusion. Language had been inserted in the
committee hearing process that "might arguably create a problem
that we can look at that is not fundamental to that section …
that might cause a little bit of a hiccup" and which could be
reviewed.
10:19:12 AM
Senator Huggins asked if under existing statute an additional
pipeline coordinator position could be created.
Ms. Davis stated that no provision in AGIA would prevent this.
Existing statute governing the Department of Natural Resources
established the Department's role and obligation to provide lead
support and the structure to support a large project. Therefore,
a new statute could be adopted or the existing statute could be
amended to provide for the additional pipeline coordinator
position.
10:20:03 AM
Senator Huggins identified the existing statue under Title 38.
Ms. Davis affirmed.
10:20:10 AM
Sec. 43.90.260. Expedited review and action by state
agencies. (page 19, line 10)
Ms. Davis explained this section would provide direction to
State agencies as administered by the pipeline coordinator to
ensure that agency permitting processes would not delay the
project unnecessarily. This language was modeled after federal
legislation.
10:20:40 AM
Article 3. Resource Inducement.
Section 43.90.300. Qualification for resource
inducement. (page 19, line 26)
Ms. Davis characterized this section as the "overarching
umbrella that introduces the resource inducements" contained in
Article 3. She listed the other two sections comprising Article
3 as providing for royalty inducement and inducement vouchers.
10:21:07 AM
Co-Chair Stedman directed the witness to address the provision
of Section 43.90.300(a) pertaining to the "reoccurring theme" of
"committed to acquire firm transportation capacity in the first
binding open season…"
10:21:46 AM
Ms. Davis remarked that "conceptually" the resource inducements
had been structured to "drive shippers to the first initial
binding open season". To receive a benefit provided for in AGIA,
potential shippers must participate in the first open season
rather than a later open season, and "just sort of sit on the
sidelines and see how it goes and decide to come in later if it
looks good." These producers "need to be part of the solution
and not part of the problem."
Ms. Davis explained the process in which a "gas owner" or "gas
controller" would receive notice that a pipeline company would
propose to construct a pipeline and that it would solicit the
gas controller's interest in shipping gas on that pipeline. The
pipeline company would provide information regarding the
pipeline such as its design, proposed design, proposed route,
anticipated tariff, likely cost and plan to address any cost
overruns. The pipeline company would invite the gas controller
to enter into a commercial negotiation to ship gas. That
process, under FERC regulations specifically directed to an
Alaska natural gas pipeline, would last a minimum of six months.
10:23:28 AM
Section 43.90.310. Royalty inducement. (page 20, line
6)
Ms. Davis outlined this section, which would provide that a gas
controller or party that would purchase gas subject to royalty,
would have a right to receive "certain changes in the terms
under which [royalty was] currently governed." Those changes
related to the valuation of the gas for royalty purposes, the
manner in which "gas was taken by the State, known as take-in-
kind versus take-in-value" and the State's ability to "switch
between those two options under its lease contract."
Ms. Davis informed that the structure of subparagraph (2)(1) on
lines 14 and 15 provided that the State would direct the
commissioner of the Department of Natural Resources to develop
regulations that would provide the following benefits only to
those parties that commit to ship gas at the first open season.
Ms. Davis stated that under this subsection, the Legislature
would direct the commissioner to "minimize retroactive
adjustments to the value of the State's gas". Such retroactive
adjustments occurred previously in instances in which the
producer sold gas at a certain price and after an audit, the
State under its contractual agreement, increased the royalty to
reflect a higher price received by a competitor.
10:25:18 AM
Ms. Davis continued that Section 43.90.310(a)(2), on line 16
through 30, related to the pricing for the royalty gas. Up to
the present time, a "wide range of different prices" had
existed. This provision would stipulate through various criteria
that the pricing would be "fine tuned" and "made more certain;
more definite" for the royalty payer.
Ms. Davis furthered that subsection (a)(3), on page 20, line 3
through page 21, line 3, would direct the commissioner to modify
the manner it which the State "switched back and forth" from
taking gas royalties-in-value and royalties-in-kind. Currently,
the State generally had the right to switch between the two
royalties by providing a 90-day notice. This presented a
challenge to resource owners because, upon announcement by the
State that it would collect the royalty-in-value, the producer
would sell gas at a certain price and commit to ship that gas
through a pipeline. A change in the State's decision to instead
collect the royalty-in-kind would require the producer to divert
the gas that had been committed. The shipper had "paid for that
space" in the pipeline to the original destination and would not
have sufficient time, given the 90 day notice provision, to
"pass that space off" to a different shipper or otherwise
mitigate the loss.
Ms. Davis stated that the provision of this subsection would
limit the State's ability to change the royalty and would ensure
that the State would "make whole" the impacts to the shipper.
10:28:09 AM
Senator Huggins asked how realistic was the State's likelihood
to collect the gas royalty-in-kind.
10:28:33 AM
Ms. Davis replied that the State historically had not collected
gas royalties-in-kind because gas had not been produced in
Alaska. The State had collected oil royalties-in-kind in limited
amounts.
10:28:59 AM
Mr. Galvin clarified that the State does receive oil royalty
payments in-kind for in-state use. Currently, oil was taken in-
kind and sold to the Flint Hills refinery as well as taken in
Fairbanks and sold to Tesoro for its refinery. This form of oil
royalty is generally taken to meet the in-state needs not met
through the royalty-in-value commercial sales.
10:29:30 AM
Senator Huggins understood that changing the form of the royalty
was more cumbersome for gas than oil. He asked the "window that
would merge out of this that you could switch from to in-kind or
value."
10:29:54 AM
Mr. Galvin gave the following response.
The concern about the switch isn't so much on the State's
part. There would be a question of - it's an option that we
have under our leases. So from our perspective it would
likely only come up on instances where there was in-state
needs that weren't being met and that we would be looking
to take it in-kind in order to be able to deliver to those
in-state needs.
Looking at the oil scenario, we haven't encountered a
situation where there's some opportunity in the market that
we decided only the State can take advantage of so that we
switch to in-kind and make that sale on our own. So it's
probably similarly unlikely that we're going to find a
scenario in the open market that the State wants to take
advantage of.
So it is relatively low likelihood that we would be making
the switch ourselves except for those in-state needs that
we may need to meet at some point. However, from the
lessee's perspective, the fact that the State could switch
causes them concern because, as unlikely as we see it, they
may see it as something that the State may take advantage
of and suddenly switch out on them. Then they're left not
having as much gas to sell, ship, as they expected and took
their positions on capacity or in the market sales
contracts that they no longer have the gas to fill.
10:31:34 AM
Ms. Davis reminded that Anthony Scott of the Department of
Natural Resources had testified previously that the time period
could be two years. The exact time period was not specified in
this bill to allow for input from the industry during the
regulatory process to learn its opinion of "the more reasonable
timeframe for switching". To some extent, the time period would
be dependant upon the lease holder because it would reflect its
commercial arrangements.
10:32:23 AM
Senator Huggins asked if the time period would likely be
measured in months or years.
10:32:28 AM
Mr. Galvin answered, "If we were to make it something that we
think is going to be attractive it's going to be years."
10:32:41 AM
Senator Huggins asked the expected date that the regulations
governing the calculation of royalties would be enacted.
Although some had projected this would be completed in a matter
of months, regulations pertaining to the Petroleum Profits Tax
(PPT) were not yet complete although the legislation
establishing that that system was passed by the previous
legislature.
10:33:14 AM
Ms. Davis responded that "to be valuable" regulations
establishing a method to determine the monthly value of the
State's royalty share must be completed before an open season
could be held. The AGIA license should be issued by April 2008
and she predicted that these regulations would be established by
that time.
10:33:36 AM
Mr. Galvin furthered that the Department of Natural Resources
would begin the efforts upon passage of AGIA to ensure that
regulations were in effect by April of 2008 or shortly
thereafter.
10:33:53 AM
Senator Huggins asked if a requirement that regulations be
enacted by the date of the license issuance would be "unfair".
10:34:09 AM
Mr. Galvin responded that in October 2007, once the applications
had been received, an estimation could be made for the time that
the open season would likely occur. Upon receipt of the
applications, efforts would commence to draft and implement
regulations. The parties which the State intended for
participation could require additional time to provide
"feedback" on the proposed projects. Therefore, a specific
deadline could be detrimental.
10:35:00 AM
Ms. Davis pointed out Section 43.90.310(b)(1) contained the
condition that to receive the royalty inducement, the lease
holder must commit "to ship to acquire capacity" at the initial
binding open season.
Ms. Davis listed the condition of subsection (b)(2) as the
commitment of the lease holder to not protest the "rolled in
expansion" costs of the mainline pipeline "up to the level that
the pipeline company was required to accept rolled in rates."
10:35:37 AM
Co-Chair Stedman understood the rate to be 15 percent.
10:35:41 AM
Ms. Davis clarified the rate would be 15 percent "above either
the rack rate, the initial maximum recourse rate, or 15 percent
above their negotiated rate."
10:36:04 AM
Ms. Davis specified that the commissioner of the Department of
Natural Resources would also be required to review the
regulations it enacted ever two years. The shippers would not be
required to rely solely on regulations. A producer-shipper of
gas could elect "to have the regulations incorporated as a
contractual term in their lease so that when that is embodied in
their lease it's theirs, they own it, they hold it for the
duration of that entire lease." If the commissioner revised the
regulations subsequently because "they got out of step with the
requirements of AGIA," the shipper could elect to "opt into" the
revised regulations or remain under the commitment of their
lease agreement.
10:37:14 AM
Senator Huggins posed a scenario of the ten year gas production
tax exemption for those parties that committed during the first
binding open season and asked if the parties would limit their
commitments to ten years rather than for 15 or 20 years or more.
10:37:40 AM
Ms. Davis admitted difficulty in providing a response to this
due to changes to the tax exemption adopted by the Senate
Resource Committee. If it was assumed that the ten-year
exemption was "durable and it would last", she did not predict
that a producer would restrict its shipments to ten years.
Instead, a producer would consider the "larger financial issue"
of its "business interest relative to acquiring capacity in the
pipeline given the volume of gas I need to move from the [North]
Slope and the contracts." She elaborated that the producer's
"driving commitment" for the pipeline would determine that the
amount of capacity it would acquire and the duration of that
capacity would be "driven" by its commercial model for
monetizing the gas. This economic analysis would consider a tax
exemption, the royalty provisions as established in the
regulations, and primarily by "the economics". Any changes to
the tax that occurred after the ten year exemption period would
be less important to the producer's net present value, but would
remain important from "a cash flow standpoint."
10:39:50 AM
Section 43.90.320. Gas Production tax exemption. (page
22, line 12)
Ms. Davis reported that this provision was amended by the Senate
Judiciary Committee as a result of a "legal view" that the
Alaska Constitution, which provides for the manner the
Legislature could handle taxation, stipulated that the
Legislature could never surrender its power to tax. The
Legislature could however suspend or "contract away" the power
to tax and could grant exemptions "by general law". The "general
law" language was the basis of the legal debate with regard to
the tax exemption proposed in this bill. One position held that
an exemption could have no "contractual connection" and although
laws passed by a legislature could be changed by a future
legislature and therefore be, "a constitutional grant of an
exemption by general law" the exemption could not be made
durable.
Ms. Davis contrasted this argument with another legal view
supported by the Administration and producers "by virtue of the
fact that this was the prior fiscal contract structure." This
view held that general law, such as AGIA, could authorize the
execution of a contractual exemption. This "extra contractual
underpinning" authorized in the constitutional provision that
allowed taxation to be "contracted away", would invoke another
constitutional provision known as the "impairments of contracts
clause". That clause "essentially disables" a future legislature
from impairing the contract of an earlier legislature. For that
clause to apply, a "very express statement of intent by the
earlier legislature that it intended to create a right via
contract" must exist.
10:43:30 AM
Ms. Davis relayed that because the Senate Judiciary Committee
concurred with the former legal argument, it deleted the
contractual tax exemption language from this bill. The language
no longer provided for a "certificate signed by both parties" or
a reference to a "very clear contractual right".
Ms. Davis pointed out that the amendment language did include a
"grant of ten years" of protection to a shipper that stated that
"on the date that they commit their gas at open season, that
whatever tax rate is in place on that date for production tax -
this whole provision only relates to production taxes … they can
count on the fact that the tax will never be higher than that."
The tax rate could be lower if a future legislature changed the
tax to a lower rate.
10:45:00 AM
Co-Chair Stedman asked the possibility of multiple binding open
seasons to achieve the capacity needed to warrant a "four and a
half bcf line" or other configuration.
10:45:17 AM
Ms. Davis affirmed the possibility that the first binding open
season would not secure the necessary commitments to fill the
pipeline to its capacity. In this instance, a second binding
open season could be held to "top off" the capacity commitment.
10:45:47 AM
Co-Chair Stedman surmised that if a smaller company was unable
to commit gas at the first open season because of its production
volume, the company could have a second opportunity to ship gas
through the pipeline.
10:46:06 AM
Ms. Davis stressed that any company that participated after the
first binding open season would not be eligible to receive the
AGIA incentives.
10:46:29 AM
Co-Chair Stedman asked if one company committed gas in both a
first and second open season whether only the gas committed at
the first open season would qualify for the incentives.
10:46:47 AM
Ms. Davis again affirmed that only the volume of gas committed
at the first open season would be eligible because the intent of
the AGIA incentives was to encourage and accelerate the progress
of the project.
10:47:06 AM
Senator Elton opined on the unlikelihood that a legislature
would increase the gas production tax at a time "somebody" was
"struggling with the economics of trying to make the project
work." Therefore, the tax rate would be "locked in" before the
first open season. Given the timeline discussed earlier in the
hearing, the pipeline might not be completed before the year
2023 and it would be unlikely that a future legislature would
"kind of break faith with this general law". He concluded that
the State could be essentially committed to a gas production tax
until possibly 2033. This was a long period of time and the
"lock down" was "more of a political imperative."
10:49:06 AM
Senator Huggins reminded that the Committee had agreed that a
"window" would be established to provide the timing of when the
taxes would be in effect.
10:49:37 AM
Co-Chair Stedman posed the following.
The issue, I guess the question is, the way this is
written, there's the opportunity at the first binding open
season to lock in whatever tax rate it is, currently its 22
and a half. Is the Administration looking at some window
where that's going to be reviewed or is the operational
plan to leave it at that or what's the desire of the
Administration?
10:50:03 AM
Mr. Galvin responded as follows.
With regard to the current PPT, we're looking closely at
both the tax rate for both oil and for gas. We have
discussed in the context of the revenue projections and the
fact that we're experiencing lower PPT receipts then what
we had anticipated that the PPT itself is going to have to
be evaluated in terms of whether it is performing and
resulting in what you expected when it was passed by the
Legislature last year.
Co-Chair Stedman directed Mr. Galvin to limit his response to
taxation on gas because "oil's a whole other problem".
Mr. Galvin continued.
In the context of PPT in general, we're looking at the
nature of the tax itself. That also leads us to a question
of the gas tax rate. At this particular point and time, we
don't have enough information to be able to take a position
on whether or not the 22.5 percent is an appropriate rate -
is too high or too low. But we do anticipate both in the
near term and mid term, receiving more information so that
we can have a better handle on where we feel that rate
should be and information that we can provide to [the]
legislature to make a determination on how you feel where
that rate should be.
What we all are committed to is making a decision as soon
as we can with the information that's available to us.
Clearly we need to come to an understanding before we get
to that open season so that the rate that's locked in for
the timeframe that we all recognize could be much longer
than ten years, that it's a rate that we're all comfortable
with. So we all are going to need to assess that. I don't
think it's something that we want to say at this point that
22.5 percent is the rate that's going to be in place at the
time of the open season. I think we're going to need to
look at that.
10:52:13 AM
Senator Huggins agreed that the Administration was reviewing the
"elements". The issue was that the date of the "window" would be
agreed upon rather than the actual rate.
10:52:56 AM
Co-Chair Stedman commented that if the rate were increased,
calculations must be made to ensure that the State was not
disadvantaged during the first open season. Conversely, if the
rate were too high, the tax could "block" participants from
committing at open season due to the economic impact.
10:53:15 AM
Mr. Galvin agreed to the duty to establish a time frame in which
the tax rate would be discussed. The Department of Revenue
anticipated information would be available in the upcoming
summer evaluating the current tax rate in comparison to rates
imposed elsewhere. Upon receipt of that information and
discussions with the Legislature, an appropriate timeframe could
be determined.
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 10:55:13 AM
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