Legislature(2007 - 2008)BUTROVICH 205
04/18/2007 01:45 PM Senate JUDICIARY
| 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 | |
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
April 18, 2007
2:03 p.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Charlie Huggins, Vice Chair
Senator Bill Wielechowski
Senator Lesil McGuire
Senator Gene Therriault
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 104
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 104
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (S) READ THE FIRST TIME - REFERRALS
03/05/07 (S) RES, JUD, FIN
03/14/07 (S) RES AT 3:30 PM BUTROVICH 205
03/14/07 (S) Heard & Held
03/14/07 (S) MINUTE(RES)
03/16/07 (S) RES AT 3:30 PM BUTROVICH 205
03/16/07 (S) Heard & Held
03/16/07 (S) MINUTE(RES)
03/19/07 (S) RES AT 3:30 PM BUTROVICH 205
03/19/07 (S) Heard & Held
03/19/07 (S) MINUTE(RES)
03/21/07 (S) RES AT 3:30 PM SENATE FINANCE 532
03/21/07 (S) Heard & Held
03/21/07 (S) MINUTE(RES)
03/21/07 (S) RES AT 5:30 PM SENATE FINANCE 532
03/21/07 (S) Heard & Held
03/21/07 (S) MINUTE(RES)
03/22/07 (S) RES AT 4:15 PM FAHRENKAMP 203
03/22/07 (S) Heard & Held
03/22/07 (S) MINUTE(RES)
03/23/07 (S) RES AT 1:30 PM BUTROVICH 205
03/23/07 (S) Heard & Held
03/23/07 (S) MINUTE(RES)
03/24/07 (S) RES AT 1:00 PM SENATE FINANCE 532
03/24/07 (S) Heard & Held
03/24/07 (S) MINUTE(RES)
03/24/07 (S) RES AT 3:00 PM SENATE FINANCE 532
03/24/07 (S) Heard & Held
03/24/07 (S) MINUTE(RES)
03/26/07 (S) RES AT 3:30 PM BUTROVICH 205
03/26/07 (S) Heard & Held
03/26/07 (S) MINUTE(RES)
03/27/07 (S) RES AT 3:00 PM BUTROVICH 205
03/27/07 (S) Heard & Held
03/27/07 (S) MINUTE(RES)
03/28/07 (S) RES AT 3:30 PM BUTROVICH 205
03/28/07 (S) Heard & Held
03/28/07 (S) MINUTE(RES)
03/29/07 (S) RES AT 5:00 PM BUTROVICH 205
03/29/07 (S) Heard & Held
03/29/07 (S) MINUTE(RES)
03/30/07 (S) RES AT 1:30 PM BUTROVICH 205
03/30/07 (S) Heard & Held
03/30/07 (S) MINUTE(RES)
03/31/07 (S) RES AT 12:00 AM BUTROVICH 205
03/31/07 (S) Heard & Held
03/31/07 (S) MINUTE(RES)
04/01/07 (S) RES AT 11:00 AM BUTROVICH 205
04/01/07 (S) Moved CSSB 104(RES) Out of Committee
04/01/07 (S) MINUTE(RES)
04/02/07 (S) RES RPT CS 6AM SAME TITLE
04/02/07 (S) AM: HUGGINS, GREEN, STEVENS, STEDMAN,
WIELECHOWSKI, WAGONER
04/02/07 (S) RES AT 3:30 PM BUTROVICH 205
04/02/07 (S) Moved Out of Committee 4/1/07
04/02/07 (S) MINUTE(RES)
04/04/07 (S) JUD AT 2:45 PM BELTZ 211
04/04/07 (S) Heard & Held
04/04/07 (S) MINUTE(JUD)
04/11/07 (S) JUD AT 1:30 PM BUTROVICH 205
04/11/07 (S) Heard & Held
04/11/07 (S) MINUTE(JUD)
04/11/07 (S) JUD AT 5:30 PM BUTROVICH 205
04/11/07 (S) Heard & Held
04/11/07 (S) MINUTE(JUD)
04/12/07 (S) JUD AT 3:30 PM BUTROVICH 205
04/12/07 (S) Public Testimony 5:30 pm to 7:00 pm
04/13/07 (S) JUD AT 1:30 PM BUTROVICH 205
04/13/07 (S) Heard & Held
04/13/07 (S) MINUTE(JUD)
04/13/07 (S) JUD AT 5:30 PM BUTROVICH 205
04/13/07 (S) Heard & Held
04/13/07 (S) MINUTE(JUD)
04/14/07 (S) JUD AT 10:00 AM BUTROVICH 205
04/14/07 (S) Heard & Held
04/14/07 (S) MINUTE(JUD)
04/15/07 (S) JUD AT 11:00 AM BUTROVICH 205
04/15/07 (S) -- MEETING CANCELED --
04/16/07 (S) JUD AT 1:30 PM BUTROVICH 205
04/16/07 (S) Heard & Held
04/16/07 (S) MINUTE(JUD)
04/17/07 (S) JUD AT 3:30 PM FAHRENKAMP 203
04/17/07 (S) <Teleconference Listen Only>
04/18/07 (S) JUD AT 1:45 PM BUTROVICH 205
04/18/07 (S) JUD AT 5:30 PM BUTROVICH 205
WITNESS REGISTER
MARCIA DAVIS, Deputy Commissioner
Department of Revenue
Juneau, AK
POSITION STATEMENT: Discussed changes in Version O CS for SB
104
DON BULLOCK, Attorney
Alaska Legal and Research Services Division
Legislative Affairs Agency
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Outlined changes in Version O CS for SB 104
ACTION NARRATIVE
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 2:03:16 PM. Present at the call to
order were Senator McGuire, Senator Wielechowski, and Chair
French. Senator Huggins and Senator Therriault arrived soon
thereafter.
SB 104-NATURAL GAS PIPELINE PROJECT
2:03:35 PM
CHAIR FRENCH announced the consideration of SB 104 and asked for
a motion to adopt Version O committee substitute (CS).
SENATOR WIELECHOWSKI motioned to adopt Version O, labeled 25-
GS1060\O, as the working document.
CHAIR FRENCH objected for discussion purposes.
2:04:09 PM
MARCIA DAVIS, Deputy Commissioner for the Department of Revenue,
introduced herself.
DON BULLOCK, Attorney with Alaska Legal and Research Services
Division, introduced himself and clarified he was present to
discuss the bill and not the policies. He summarized the five
articles within AS 43.90 as follows: Article 1 is the purpose;
Article 2 generally has the provisions relating to the licensee;
Article 3 has the tax and royalty inducement provisions and a
voucher option; Article 4 has miscellaneous provisions; and
Article 5 has general provisions including the definitions.
MR. BULLOCK said he believes some sections have been moved into
a more logical order. The abandonment provision was in 43.90.120
and now it's located in 43.90.240. That provision relates to
whether or not a project has become uneconomic and ought to be
abandoned. As a result of moving that section to the back, the
sections numbered 43.90.130 through 43.90.240 in the resources
CS now correspond to 43.90.120 through 43.90.230 in Version O
MR. BULLOCK explained that the provisions that relate to the
inducement act coordinator and the expedited review by state
agencies have been moved into Article 2 because they relate to
the state's relationship with the licensee. Sections 43.90.400
and 43.90.410 in the resources CS are 43.90.250 and 43.90.260 in
Version O. Also, the section that provides for development of a
job training program is moved from section 43.90.420 in the
resources CS to 43.90.470 in Version O.
2:06:46 PM
MR. BULLOCK said additional uncodified sections have been added
at the end of the bill.
Section 5 states legislative intent that the first request for
applications be made within 90 days after the effective date of
this Act. That corresponds with a change made in the resources
CS that said that the commissioners shall make the first request
within 90 days after the effective date. He explained that that
poses legal problems because it was unclear what would happen if
the commissioners didn't action within 90 days.
Section 6 is a new section adding uncodified law. It states
legislative intent that the courts expedite consideration of
cases related to this Act.
Section 7 is uncodified law that makes the Act severable,
meaning that if any section is found to be unconstitutional or
otherwise invalid, the remainder of the Act is in effect. This
section was moved from a codified section to an uncodified
section and has no substantive change.
2:07:47 PM
Senator Huggins joined the committee.
MR. BULLOCK highlighted changes contained in Version O.
Page 2, line 15, relates to the monetary inducement given to the
licensee. It says that the money that's provided to the licensee
is subject to appropriation.
Page 3, line 12, relates to the 90 day requirement that was
given to the commissioners to issue the first request for
licenses. The language was changed to say "as soon as
practicable" to give needed administrative discretion to act
quickly, but not at the expense of being effective.
MS. DAVIS added that it links with the provision in the
uncodified section.
MR. BULLOCK agreed.
MS. DAVIS noted a typographical error on page 3, line 6. Remove
the comma after "assets" to clarify that "assets" and "work
product" are in the same clause.
MR. BULLOCK continued to highlight changes.
Page 4, lines 8-10, relate to the list of requirements an
applicant must satisfy when submitting an application. The new
language requires an applicant to explain the practices for
controlling pipeline emissions as established by the U.S.
Environmental Protection Agency.
Page 6, line 13 through page 7, line 30, which deals with the
rolled-in rate versus incremental rate issue, was substantially
rewritten by the administration.
CHAIR FRENCH asked Ms. Davis to provide an explanation.
2:11:52 PM
SENATOR THERRIAULT joined the meeting.
MS. DAVIS relayed that the provision imposes a requirement on
how the pipeline owner will commit to handle future expansion
costs. In the resource CS the section was a single statement
that the cap on rolled-in rate treatment for expansion costs was
15 percent of the initial maximum recourse rate, but subsequent
testimony indicated that public companies need to retain
flexibility to negotiate rates as opposed to the maximum
recourse rate, which she said is comparable to the "rack rate"
in the hotel industry. To accommodate the request for
flexibility, three mathematical caps are identified in Section
7(A): 1)An individual paying a maximum recourse rate agrees to
pay 15 percent above that initial maximum recourse rate. 2)An
individual that negotiated a rate agrees to pay 15 percent above
that negotiated rate. 3)A shipper that comes along subsequent to
the initial binding open season agrees to a cap that is 15
percent above the weighted average rate amongst the initial
shippers. In response to a question, she explained that the
different rates are weighted on the relative volumes.
2:15:17 PM
SENATOR WIELECHOWSKI asked about the thought process behind
using a combination of incremental and rolled-in rates in
Section 7(A).
MS. DAVIS explained that it flows from subparagraph (D). When an
expansion costs more than the 15 percent cap, the cost up to the
cap is proposed to be handled as a rolled-in rate while the
costs in excess of that cap are essentially open for the
pipeline company to propose incremental rolled-in rates as
appropriate. Basically it's not mandating a treatment above the
15 percent cap, she stated.
SENATOR McGUIRE asked what it does to exploration if the
pipeline company is allowed to do a combination of incremental
and rolled-in rates.
MS. DAVIS explained that this is an effort to balance competing
interests. Clearly an explorer would prefer rolled-in rate
treatment through the entire process. But by the same token,
initial shippers would like to see incremental rates at a
certain point because it places the cost of the expansion that's
beyond the cap, on the back of the expansionists.
SENATOR THERRIAULT added that it's somewhat balanced by the
direction Congress gave FERC about not going into the realm of a
subsidy.
MS. DAVIS said FERC certainly controls and governs the rules
regarding interstate pipelines. That's why the language says
that a pipeline will propose the support; it cannot mandate.
2:19:17 PM
SENATOR THERRIAULT opined that this appears to be a fair match
with what FERC language says.
MS. DAVIS stated that the administration disagrees with some
members of the producer group as to when a subsidiary kicks in.
Ultimately FERC decides, but we believe this is a fair balance
between the competing interests, she stated.
2:20:45 PM
MR. BULLOCK continued to highlight changes.
Page 9, line 6, has added language to require the applicant to
commit to establish or use existing hiring facilities in the
state and, as far as practicable, to use state job centers as
well as Internet-based labor exchange systems.
Page 9, lines 11-13, contain a new paragraph 16 that requires an
applicant to waive the right to appeal issuance of a license to
another applicant or a determination by the commissioners that
no license is awarded because no application sufficiently meets
the state's needs.
Page 9, lines 15-18, contain a definition for project labor
agreement.
Page 9, lines 22-29, outline that additional information is
required of an applicant to disclose all affiliates and
significant players in carrying out the project.
2:22:11 PM
SENATOR THERRIAULT asked if the administration suggested the
language in paragraph 19.
MS. DAVIS replied the language is from the House CS and the
administration didn't object. It acknowledges the large and
complex business structure behind the applications and addresses
the administration's desire to know about and fully understand
the scope and extent of ownership of those entities.
Representative Ramras wanted to be able to weight and evaluate
the extent of ownership in various companies.
MR. BULLOCK highlighted a link between this section and the
evaluation criteria in 43.90.170. He explained that part of the
criteria relates to the evaluation of the project's likelihood
of success. This type of information provides the commissioners
the opportunity to look at the history of the applicant and the
people the applicant plans to use to do the work. It basically
gives the commissioners the body of information to work from.
2:23:54 PM
MS. DAVIS informed the committee that Senator French's
recommendation regarding the treatment of confidential
information that an applicant wants back had been accommodated,
but it's in the wrong place. On line 18 the clause "and retained
under this chapter" ought to go down on line 22. The last
sentence in subsection (a) would read: "After a license is
awarded, all information submitted by the licensee and retained
under this chapter shall be made public."
CHAIR FRENCH found no objection to the change.
MR. BULLOCK continued to highlight changes.
Page 11, lines 14-20, contain a provision that appears in the
House bill and is in the section relating to notice, review, and
public comment on the applications. This allows information that
would otherwise be confidential to be disclosed to the
legislative auditor, the fiscal analyst who serves as head of
the legislative finance division, their agents and contractors,
and legislative members on the condition that they sign a
confidentiality agreement prepared by the commissioners.
2:26:04 PM
CHAIR FRENCH asked about the deletion on line 6.
MS. DAVIS explained that on page 11, line 6, the phrase "not
public records and" was deleted as a technical fix. Another
suggested clarification is to insert "of the confidential
information" following "summary" on line 11, to clarify what is
being summarized.
At ease from 2:27:25 PM to 2:27:48 PM.
CHAIR FRENCH removed his objection to adoption of Version O.
Finding no further objection, he announced that Version O is the
working document before the committee.
CHAIR FRENCH recapped the first suggested amendment and asked
for a motion.
SENATOR McGUIRE moved Amendment 1.
Amendment 1
Page 3, line 6, following "assets":
Delete the comma
CHAIR FRENCH announced that without objection Amendment 1 is
adopted.
SENATOR McGUIRE moved Amendment 2.
Amendment 2
Page 10, line 18, following "licensee":
Delete "and retained under this chapter"
Page 10, line 22, following "licensee":
Insert "and retained under this chapter"
CHAIR FRENCH announced that without objection Amendment 2 is
adopted.
2:29:14 PM
SENATOR McGUIRE moved Amendment 3.
Amendment 3
Page 11, line 11, following "summary":
Insert "of the confidential information"
CHAIR FRENCH announced that without objection Amendment 3 is
adopted.
MR. BULLOCK continued to highlight changes.
Page 13, line 2, contains the new language "proposes a project
that". It clarifies that it's the project that will sufficiently
maximize the benefits to the people. It's not the application.
Page 13, line 12, specifies that the notice that a licensee has
been identified is delivered to the Senate President and the
Speaker of the House.
Page 13, line 21 through page 14, line 10, provides for
legislative approval of the commissioners' determination with
the rules committee in each house having the responsibility of
introducing a bill. The bill must pass in 60 days affirmatively
approving the licensee or that licensee will be deemed rejected.
At that point the commissioners would then decide whether or not
to start the process over again.
2:31:44 PM
CHAIR FRENCH asked if that needs to be stated because when he
read the provision, he took it to be an implication that the
license goes away if the bill doesn't pass.
MR. BULLOCK cautioned against relying on implication and
suggested adding language to say that if the bill isn't
approved, then the license may not be issued. "This operates
that way because only if there is approval do the commissioners
have the authority to issue the license," he stated.
CHAIR FRENCH suggested adding "if the bill is not approved, the
license may not be issued."
SENATOR WIELECHOWSKI agreed and said he's also concerned with
the language on line 30 where it says that "issuance of the
license approved by the legislature is a final administrative
action". He opined that it should be a bill. If it's an
administrative action there are administrative appeals, superior
court appeals and supreme court appeals. "That's kind of the
whole purpose of what we're trying to avoid here so I would
suggest we figure out a way to change that," he stated.
MR. BULLOCK explained that the language is there because it's an
executive branch function to issue the license with legislative
approval. If issuance of the license is subject to appeal, then
this simply establishes the date the clock starts for an appeal.
MS. DAVIS said she had the same question, but now that there's
language in the earlier section that states that applicants
waive the right to appeal the award and the decision to make no
award, it's unclear how that would interact with this sentence
unless someone who isn't an applicant would have standing to
appeal.
CHAIR FRENCH said in addition to the applicants, there will be
many other concerned citizens that will be interested to know
just how this license is awarded. This recognizes the odd power-
sharing between the legislature and the executive branch in the
issuance of this license because there are separation of powers
issues here. "The reality is that in order to preserve some
right to challenge the issuance of that license, I think you
have to put that flag post on there-the final administrative
action. That's the way we signal that," he stated.
2:35:46 PM
SENATOR McGUIRE said she has grave concern with subsection (d).
At one time the legislature had the authority to disapprove the
license and now it's been changed to approving the license in 60
days. She pointed out that tremendous leveraging would occur and
said she wonders if the administration has considered an escape
valve. She noted that "in the regulatory writing arena we do
have a process by which you have normal comment periods and so
forth, but then we have emergency regulations that come in." The
latter anticipates the unanticipated. She cautioned the
administration and the committee members to think long and hard
about the political ramifications of us not approving this in a
60-day period.
MS. DAVIS stated that the administration's approach from the
start was to invite legislative involvement while ensuring that
in the event of no action or inability to act, the process would
still move forward. If the legislature had red flags, the idea
was to create the opportunity for it to unify and point out a
problem. "I believe our approach was whether by comity or
agreeing to disagree as far as where the constitutional lines
lay, this governor was open to listening to that red flag and
that 'stop' and making sure that if the state moved forward, it
moved forward on a unified basis or at least on a basis that
didn't have a legislature affirmatively saying 'Don't do it.'"
This cuts the balance differently. Basically it says the
executive branch is doing a part and the legislative branch is
undertaking the full responsibility for the project moving
forward. That means that the project can only move forward if
the legislature agrees that it should move forward.
MS. DAVIS said regardless of good faith, under the current
language the risk of an inability to agree will have one of two
outcomes. One is that the governor will honor the will of the
legislature - as much as that can be done in the case of a non-
decision as opposed to a firm decision of approval or
disapproval. The other outcome is that if the governor sees it
as an emergency, she might undertake the constitutional mantel
that she believes she does have, and move forward. The current
language "sets that stage for that kind of decision making to a
future point." It doesn't have to be decided today and it may
never be decided because the legislature recognizes the
importance of the gasline and would feel great pressure to do
something affirmative.
MS. DAVIS said she shares Senator McGuire's concern because no
one knows what the future holds. "All you can do is have faith
that everyone is going to do their job and that they're going to
do it to the best of their ability and with the interest of
Alaska in their hearts."
2:41:03 PM
SENATOR THERRIAULT said he has a separate train of thought on
the issue and asked if something could be structured so that
lack of action would be declared by law, to be legislative
approval.
CHAIR FRENCH advised that he had a conversation with Tam Cook
about that issue. He suggested that a sentence could be inserted
to say that "failure of the legislature to approve the license
results in the approval of a license." The difficulty is that
weakens the claim for legislative authority to approve the
contract. The reasoning is that if you believe the legislature
has a legitimate role in approving the contract, yet a structure
is established that essentially cuts the legislature out for
failure to act, then someone claiming that the executive powers
infringed would point to that provision. The argument would be
that the legislature recognized that a failure to act means the
license springs to life. Ms. Cook analyzed that as a chip in the
wall of legislative authority, he said. "We could make that
policy choice to insert the sentence, but it does weaken ... our
claim on having a right to approve the license." He supplemented
that saying that he agrees with Senator McGuire; good bills die
all the time. "But I ultimately believe that the rule of 11 in
the Senate and the rule of 21 in the House prevails." If certain
small minority factions are trying to stop a bill there are many
methods of overcoming those resistances as long as people are
willing to use every parliamentary rule at their disposal.
Ultimately, the majority will in this building prevails no
matter who is claiming the prerogative to bottle a bill up or
subvert the will of the majority," he stated.
SENATOR THERRIAULT commented that's easier said than done, but
this is probably of such importance to the state's future that
all of those things would be considered.
SENATOR THERRIAULT relayed his concern about the 60-day
timeline. Originally it was 30 days and the House decided on 90
days. Although he hadn't heard all that debate, he thought it
was predicated on the fact that the legislature wouldn't be in
session while the administration was evaluating different
scenarios. He said he believes that language in the bill says
that as soon as the bids are unsealed, the legislature and its
consultants get that information. We could be evaluating and
questioning those proposals right along with the administration,
he said. If we hit the ground running we certainly don't need 90
days.
SENATOR THERRIAULT said if the legislative session starts in
February as some legislation suggests, then 60 days puts the
timetable into April, which might impact a full and robust field
season.
2:45:47 PM
MS. DAVIS said 60 days recognizes the resource committee's
concern that it ought to be more than 30 days and 90 days. She
noted that the new language does give the legislature the
opportunity to hit the ground running and she fully expects the
legislature to be aggressively and actively engaged in looking
at and discussing the applications with the commissioners as
they're submitted. With that in mind, we continue to believe
that 30 days is a better target, she stated.
With regard to field season, a company that's been designated
the selected applicant is going to be on notice that it needs to
start thinking about jumping into action as per the project plan
that was outlined. If this next session begins in February, 30
days out is the beginning of March and in 60 days it's into
April. She envisions that an applicant can make some contingency
planning, but not entirely since the field season requires
contractual commitments for some expensive on-the-ground work.
They might work on permitting in advance, but lining up
resources and equipment is risked capital so they might be wary.
She couldn't speak for the various companies, but 30 days would
certainly be easier than 60 days.
MR. BULLOCK said his concern with time relates to the unknown
scope of the legislative review. If it's limited to a review of
the application that the commissioners bring forward then 30 or
60 days would probably be reasonable. However, if the
legislature looks at other options and effectively does the same
evaluation and ranking that the commissioners did to come up
with a decision, then it'll take more time.
2:49:44 PM
SENATOR WIELECHOWSKI said if 60 days is the choice for this
bill, he would suggest changing the 90 day session bill so that
the session starts earlier next year.
CHAIR FRENCH said as a point of order, nothing in this bill
mandates when the 60 day consideration begins. It could be in a
special session. He noted that subsection (c) at the top of page
14 envisions back-to-back special sessions in which the bill
would carry over from one to the other. It will probably mandate
a two-thirds vote because it essentially suspends a Uniform
Rule. The committee should consider that there's no tie between
the start of session and the start of deliberation of AGIA.
CHAIR FRENCH pointed out that inserting legislative approval
does diminish the due process rights of the unsuccessful
licensees. He said he can see that this is going to create a
winner track and a loser track and those unsuccessful applicants
are going to ask to have their cases heard and their proposals
considered. That's why 60 days is in the right zone, he stated.
2:51:51 PM
SENATOR McGUIRE said the reality is there will be more to do
during that 60-day period than just analyzing the licensee. "I'm
just concerned about the approval part," she said.
CHAIR FRENCH reminded members that the bill wouldn't leave the
committee today so there's time to think about changes. He said
he would suggest inserting language that says "If the bill is
not approved, the license may not be issued." He said he'd ask
Mr. Bullock about where to insert the sentence, but it looks as
though the beginning of subsection (d) would be a good spot.
MR. BULLOCK said he believes that'd work, but he'd give it more
thought. He noted that on page 13 it says that issuance of the
license approved by the legislature is a final administrative
action. If it isn't approved, he suggests saying it is deemed
not approved on day 61. The way it's set up you're going to have
the winner, the loser, and the almost winner. The almost winner
is the one that was recommended to the legislature and never
approved. It's at that point that you'll possibly see the
separation of powers challenge, he cautioned.
SENATOR McGUIRE asked if there's a severability clause.
CHAIR FRENCH said it's on page 30.
SENATOR McGUIRE asked what would happen under the severability
clause if the court agreed with an executive branch challenge
that the legislature was attempting to usurp the rightful
executive branch authority.
MR. BULLOCK said he wouldn't necessarily expect the court to say
the provision is invalid. It's that the legislature didn't have
the authority to approve an executive branch act under Article
3, Section 1.
SENATOR McGUIRE said her research shows there are places the
court would rightfully rule that the legislature has minimal
authority relating to items of appropriation and taxation
powers. She asked if he could envision the court bifurcating the
question.
2:56:17 PM
MR. BULLOCK said the legislature has the power of appropriation
so that's one control over how this goes forward, but the
executive branch has the ability to move funds within certain
accounts, so it could go forward anyway. Another separation of
power issue is the appointment of the inducement act coordinator
because there's question whether legislative approval of the
nomination is within the scope of the constitution. As long as
the governor is working with the legislature and acting in
comity, the administration wouldn't be likely to raise the
separation of powers issue, but someone from the public could.
The licensee that gets presented to the legislature and doesn't
get approved may be the first one at the court door, he said.
SENATOR THERRIAULT asked if an application is gone forever if
it's selected, but the legislature either turns it down or takes
no action on it.
MS. DAVIS explained that when the commissioners submit a notice
of selection, the legislature undertakes a review of that
decision making process. Invariably what has and has not been
selected in that process will be looked at so the unsuccessful
applicants' information flows through into that process. If the
legislature approves the commissioners' selection, then it moves
forward. If an applicant challenges the decision, presumably it
would have to be done on a constitutional basis because the
applicant waived the right to challenge the non-selection. If
the legislature declines to approve the licensee, and the
executive branch honors that decision, the AGIA language says
the commissioners may request new applications so the process
could start over. A second round might be fast tracked depending
upon what the commissioners thought was out there by way of
additional applications or what they learned in the legislative
review process. Certainly an unsuccessful applicant would not be
precluded from participating, she stated.
Recess from 3:00:13 PM to 3:00:34 PM.
CHAIR FRENCH said without question this has been and continues
to be one of the stickier policy issues in the bill. I don't
know if we're going to solve it before the bill leaves the
committee tomorrow, but if you bring me language today or
tomorrow we'll try and accommodate it, he said.
SENATOR McGUIRE asked Chair French to request leave from
whatever committee commitments members have to provide time to
work on this. "I think it's going to take more than the
potentially allotted time," she said.
SENATOR McGUIRE objected to the language Chair French suggested
inserting in subsection (d) because in her view it further
delineates that point. "I'd like to think overnight about
whether we go that direction or not," she said.
CHAIR FRENCH said, "To the extent that I've offered an
amendment, I'll withdraw it."
3:02:14 PM
MR. BULLOCK continued to highlight changes.
Page 15, lines 15 and 19, relate to improving the net present
value when the commissioners are considering modification to the
project plan. It's tied to the valuation and the ranking
criteria.
SENATOR WIELECHOWSKI mentioned the AOGCC testimony and asked if
this might be a good place to address the lack of information
that's available regarding offtake from the North Slope.
MS. DAVIS said she's thought about how a reasonable applicant
could step forward and make application with the question still
in the air as to what the AOGCC will ultimately determine
regarding an appropriate offtake level for gas from Prudhoe or
from other fields. For several years now everyone has heard that
4.3 bcf/day to 4.5 bcf/day offtake is reasonable and appropriate
given everyone's understanding of the field, its geology, and
its reservoir. The question is where's the point in time that
you check the box that AOGCC is on board and comfortable with
offtake rates. Applicants, independents in particular, are
legitimately concerned and it wouldn't be inappropriate to put
in language saying that a modification or amendment can be
allowed as necessary as a result of AOGCC rulings that affect
gas offtake.
3:07:53 PM
CHAIR FRENCH asked Senator Wielechowski if he had specific
language in mind.
SENATOR WIELECHOWSKI said he'd work on language tonight and
tomorrow and reiterated that he was very surprised to learn that
the state is proceeding with a pipeline yet it has no idea how
much gas is available for offtake on the North Slope.
MS. DAVIS clarified that the testimony yesterday was that AOGCC,
as the primary policeman on reservoir management issues, is
privy to confidential information through the producers' very
extensive and expensive reservoir model. But as a royalty owner
the state also has the benefit of that information so it's not
quite correct to say that it doesn't have access to the
reservoir information. There's a division within the Department
of Natural Resources (DNR) that has access to the commercially
sensitive well information, but it's not available to anyone
beyond that group. If the state were to come forward as the
complaining party she said she presumes there would be an
opportunity for a debate, but it would be in a manner that
protects the confidentiality of the information. Clearly, DNR
does not own that reservoir model so there are tools the state
doesn't possess. But before we build our own reservoir model for
the purpose of challenging the producers' model, she said to
remember that we all share the same goal. We can assume the best
and work cooperatively and if we're wrong we'll deal with it at
that juncture.
3:12:36 PM
MR. BULLOCK continued to highlight changes.
Page 17, lines 23-26, relate to the abandonment provision and
the arbitration panel that would decide whether the project has
become uneconomic. Line 23 says that the law of the state will
be applicable during the panel's review. Line 24 says that the
judgment on the award rendered by the arbitrators may be entered
in the state superior court. Lines 25 and 26 say that the
commissioners and the licensee will pick their respective
arbitrators from a list that's provided by the American
Arbitration Association.
3:13:42 PM
SENATOR WIELECHOWSKI explained that an arbitration association
typically provides a list of 9 or 11 names and then the
appointment of the third arbitrator comes from the entire
national roster. He suggested the committee give some thought
about how the list would be provided as well as the size.
MS. DAVIS stated that she and Mr. Bullock would be comfortable
having all the arbitrators selected from the entire American
Arbitration Association national roster.
SENATOR WIELECHOWSKI voiced agreement.
CHAIR FRENCH said he's compelled to point out that this project
could be stopped by two arbitrators. He asked what thought the
administration has given with respect to an appeal of the
arbitrators' decision.
MS. DAVIS replied we have been comfortable allowing an appeal to
be on the same basis as any other appeal, which is abuse of
discretion.
CHAIR FRENCH asked if that works by operation of law or if
something needs to be added to the bill to be explicit.
MR. BULLOCK said he doesn't know.
MS. DAVIS said she understands that unless it's stated
otherwise, the standard for review of an arbitrator decision is
abuse of discretion.
CHAIR FRENCH said that item's been nagging and he couldn't let
the moment pass without saying something. He suggested the
committee talk more about that.
3:16:40 PM
MS. DAVIS highlighted a technical correction on page 17, line
21, and suggested the committee change the word "or" to "and"
and the word "does" to "do".
CHAIR FRENCH restated the suggested technical amendment and
asked if there was objection to the motion.
Amendment 4
Page 17, line 21, following "commissioners":
Delete "or"
Insert "and"
Page 17, line 21, following "licensee":
Delete "does"
Insert "do"
SENATOR WIELECHOWSKI asked for discussion.
MR. BULLOCK said it comes down to who they disagree with; the
commissioners' are on one side and the licensee is on the other.
CHAIR FRENCH suggested going through the logic chain. On lines
16 and 17 it says if the commissioners and the licensee agree
that it's uneconomic, then it's over.
SENATOR WIELECHOWSKI asked what happens if one party disagrees.
CHAIR FRENCH asked who they disagree with because they don't
disagree with themselves.
SENATOR McGUIRE said they could disagree with the proposition.
MR. BULLOCK said it's conceivable that the commissioners would
disagree with each other.
SENATOR McGUIRE said she sees it as disagreeing with the
proposition of economic viability.
CHAIR FRENCH said he thinks they'd disagree with the judgment of
the other. The decision about whether it's economic hasn't been
made; one thinks it's economic and one thinks it isn't.
SENATOR WIELECHOWSKI removed his objection.
CHAIR FRENCH found no further objection and Amendment 4 passed.
3:20:08 PM
MR. BULLOCK continued to highlight changes.
Page 18, lines 4-14, contain a new subsection that requires the
arbitration panel to make specific findings to conclude that the
project is uneconomic.
CHAIR FRENCH noted that this leads to a new definition.
MS. DAVIS said this is the long awaited definition of
"uneconomic." She explained that there are two core elements for
a project being uneconomic. The first is when a project doesn't
have sufficient credit support to finance the construction of
the project through firm transportation commitments or
financing. She suggested the committee insert on line 8, after
the word "commitments" the words "government assistance or other
sources of financing". [strike "or financing"]
SENATOR McGUIRE asked if it's important to define other sources
of financing.
MS. DAVIS said once you start the list it'd be difficult to
stop.
SENATOR McGUIRE moved Amendment 5.
Amendment 5
Page 18, line 8, following "commitments":
Strike "or financing"
Insert "government assistance or other sources of
financing;"
CHAIR FRENCH found no objection and announced that Amendment 5
is adopted.
3:24:04 PM
SENATOR McGUIRE referenced page 18, line 6, and asked why the
evidence standard is a "preponderance of evidence" as opposed to
"clear and convincing evidence."
MS. DAVIS said the definition was analyzed from many contexts
and the preponderance of evidence standard seemed to be a fair
approach. She noted that there was concern that independents
might feel that the deck had been stacked and that it would be
difficult to extract themselves. We thought this was a
commercially reasonable approach, she said.
CHAIR FRENCH said from a policy standpoint this seems to be a
counter argument to the folks that are saying the AGIA bill is
potentially a bad marriage that won't be over for 11 years. In
my mind, this is one of the circuit breakers, he said. If the
project is going bad because it's being poorly handled or
because the economics collapse, you get out by going to the
arbitrators and getting a decision.
3:25:47 PM
MS. DAVIS read the second part of the definition and said it's
designed so that arbitrators could look forward and ask whether
a project has a reasonable likelihood of being economic based on
factors that have to be plucked from the future. We think we've
struck a good balance, she stated.
CHAIR FRENCH asked if a 100 percent load factor would be
whatever is proposed as the initial thruput.
MS. DAVIS said yes.
SENATOR WIELECHOWSKI referenced lines 11 and 13, and asked why
it talks about a producer rate of return and the upstream
investment as opposed to a pipeline rate of return and a
midstream investment.
MS. DAVIS explained that both the producer rate of return and
the incremental upstream investment refer to costs that are
upstream of the inlet to the pipeline. The upstream investment
that's required is somewhat vague because it depends upon what
part of the project is being provided by the pipeline. The idea
is to identify the body of costs and the likely revenue to see
if the net provides a prudent reasonable rate of return for a
prudent company. That's what an arbitrator would look at when
making a decision, she stated.
3:31:03 PM
MR. BULLOCK continued to highlight changes.
Page 18, lines 23 and 24, has changed language that says if the
licensee and the state agree or the arbitration panel finds that
the project is uneconomic there's a list of things that the
licensee must assign to the state. Compensation for the
assignment has been narrowed to the net amount of the licensee's
qualified expenditures under 43.90.110. Those are expenditures
for which the state contributes.
3:32:42 PM
Page 18, line 29, relates to the Alaska Gasline Inducement Act
coordinator. The coordinator position is placed in the Office of
the Governor and that office is required to provide
administrative support.
Page 19, lines 5 and 6, add language stating that the AGIA
coordinator may be removed from the position at the discretion
of the governor.
SENATOR THERRIAULT asked about the constitutionality of
confirmation by the legislature.
MR. BULLOCK said this bill doesn't make a change, but it does
raise a constitutional issue. The constitution authorizes
legislative confirmation of the head of an executive branch
agency and members of certain boards and commissions. This
position isn't like a board or commission and it doesn't have
commissioner type power; it's more an ombudsman role, he stated.
3:34:48 PM
SENATOR THERRIAULT said if the position isn't quasi judicial or
doesn't have powers of a commissioner, then he doesn't know what
the justification is for inserting legislative involvement
because it could be an unnecessary constitutional glitch.
SENATOR McGUIRE asked if someone could refresh her memory about
what powers Drue Pearce has as Federal Coordinator for Alaska
Natural Gas Transportation Projects.
MR. BULLOCK explained that this position is modeled after the
federal coordinator position and the president makes the
appointment.
CHAIR FRENCH said striking the sentence that says the
appointment is subject to confirmation by the legislature would
remove any question of a problem. Responding to a question, he
said he didn't have strong feelings either way.
MR. BULLOCK advised that the committee has the option of
achieving whatever goal it likes by developing particular duties
or powers of the position.
CHAIR FRENCH said it's something for the committee to mull over.
3:37:14 PM
MR. BULLOCK advised that there were no changes in 43.90.260. The
provision was simply relocated.
Page 19, lines 30 and 31 through page 20, line 2, relate to a
voucher. It says that in addition to the people that qualify for
the resource inducement because they acquired firm
transportation capacity during the first binding open season, a
person with a voucher can also take advantage of the tax and
royalty inducement.
CHAIR FRENCH noted that on line 29, the reference to the tax
exemption inducement was removed. He asked Mr. Bullock if he had
any comment.
MR. BULLOCK said no; it goes back to discussions on Article 9,
Sections 1 and 4 as to whether taxing power can be contracted
away. The inducement in 43.90.310 refers to the royalty
inducement that is contractual between the state and the
producers. On page 22, lines 17 through 22, language was removed
that refers to the certificate issued by the commissioner of
revenue that provides a contractual basis for the tax exemption.
CHAIR FRENCH highlighted the fact that this is a big policy
change because it makes the tax exemption a general law
exemption. In your view and parenthetically in my view this
makes it more likely constitutional, he stated. If it's
contractual, it's more likely unconstitutional.
MR. BULLOCK expressed the opinion that it's consistent with
Article 9 Sections 1 and 4. Section 1 says the state can't
contract or suspend the power to tax except as provided in the
Article. Section 4 allows exemptions to be created by general
law. He said that in this case it's created by general law, and
the 10 year provision expresses the intent of the legislature at
the time of enactment. If there's a fiscal crisis, the state
wouldn't need to argue whether a law is impairing the
obligations of a contract thereby raising Article 1, Section 15
issues. It's just a matter of general law. The power of the
legislature is there, but the political question is whether the
legislature would actually vote to change this section given the
expected reliance on the intent at the time of enactment. If
there's a problem 8 years down the road some legislators won't
support a change because of that intent and others will argue
it's necessary and the legislature can make the determination as
it comes up, he said.
3:41:57 PM
SENATOR WIELECHOWSKI stated for the record that if this is ever
reviewed, his intent is that having this provision in the bill
is an exemption. It's permissible under Article 9, Section 4 of
the constitution and it's intended to be an inducement to
industry.
SENATOR THERRIAULT said, "I wonder if Ms. Davis wants to concede
defeat or the administration still has a different view that, in
fact, AGIA is the law of general application."
MS. DAVIS said yes; we continue to believe that the contractual
underpinnings are important in that they amplify the ability to
ensure fiscal certainty through the impairments clause. Also, we
don't believe it restricts it from being considered a general
law, she stated.
3:43:17 PM
MR. BULLOCK pointed out that the other problem with these
constitutional issues is when they might be considered by the
court. It goes back to declaratory judgment issues and the court
not taking action until the issue is actually presented, he
said. If the issue is whether or not the contracting away is
unconstitutional, the court may say it's speculative as to
whether there would be a constitutional problem. If it's
dormant, the court would say wait and see what happens. Even
though the bill creates a statute of limitation for bringing a
constitutional challenge, it's in the court's discretion to
accept it or not. The court might say it's not going speculate
on whether 8 years down the road the legislature is going to
increase the tax, which would trigger the action under this
section.
MS. DAVIS said on the issue of ripeness, we would see this as
not a dormant issue from the beginning. There are companies
essentially offering to contract with the state for billions of
dollars in reliance upon that provision being valid and
constitutional. So there are live actions in the hearing today
that are affected by whether or not that law is constitutional.
So we would argue fervently that the issue can be resolved
sooner rather than later.
CHAIR FRENCH said it sounds as though you'd welcome a
constitutional challenge immediately after the bill goes into
effect.
MS. DAVIS said we are in favor of fiscal certainty and anything
that resolves question in applicants' and participants' minds is
good for the process.
SENATOR McGUIRE commented the legislature doesn't do things
quickly so it's likely that there won't be a tax change for 10
years. She said she can see both sides clearly, but she can't
get away from the notion about one legislature binding another.
She said she also recognizes the commercial reality the
administration is facing. She said she knows the folks in this
room need certainty to predict economics, but there's some
precedential concern about future industries coming forth with
similar arguments.
3:47:43 PM
MR. BULLOCK said he has two points of view as to whether the
power to tax can be contracted away. His opinion is that it
would be unconstitutional, but as a legislative attorney he
advises caution because it has to do with impairing legislative
power in the future.
MR. BULLOCK continued to highlight changes.
Page 20, lines 9 and 10, and page 22, lines 21 and 22, have
similar provisions for the royalty and tax inducements that
refer to the voucher that's created in the 43.90.330. Without
the changes the royalty inducement and tax inducement could only
be enjoyed on the gas that's transported in the capacity that
was acquired by the producer. This section recognizes that the
voucher has been created and it gives another option to qualify
for the inducements.
Page 22, line 30 through page 23, line 8, is a new section that
provides for inducement vouchers.
CHAIR FRENCH asked Ms. Davis for an explanation.
MS. DAVIS explained that 43.90.330is the provision that allows a
buyer of gas from a producer on the North Slope to be able to
acquire capacity in a pipeline at the initial open season and
place that gas into the pipe and ship it. In all likelihood this
will be a mechanism used by in-state purchasers of gas, she
said. We wanted to ensure that there was a means for buyers
willing to make a commitment in an initial open season to be
able to negotiate the more favorable pricing provisions that
would flow from having the associated royalty and benefits. This
provision has been designed to enable that commercial
transaction. As previously written, the only people who could
enjoy royalty and tax benefits were the producers themselves.
SENATOR McGUIRE stated emphatic support for the provision.
MS. DAVIS said it's a complex topic, and it needs a bit more
tweaking, but she hopes to have the final language either
tomorrow or when the bill is before the finance committee.
CHAIR FRENCH stated that he shares the general enthusiasm for
the policy direction, he recognizes the complexity of the topic,
and he appreciates that more work needs to be done.
3:53:20 PM
CHAIR FRENCH recessed the meeting until 5:30 pm.
| Document Name | Date/Time | Subjects |
|---|