Legislature(2007 - 2008)BUTROVICH 205

04/18/2007 05:30 PM Senate JUDICIARY


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05:53:33 PM Start
05:54:56 PM SB104
06:42:36 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change --
+= SB 104 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Heard & Held
<Teleconference Listen Only>
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                         April 18, 2007                                                                                         
                           5:53 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                                                                                                              
                                                                                                                                
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                                                              
                                                                                                                                
PATRICK GALVIN, Commissioner                                                                                                    
Department of Revenue                                                                                                           
Juneau, AK                                                                                                                      
POSITION STATEMENT:  Responded to questions related to SB 104                                                                 
                                                                                                                                
MARCIA DAVIS, Deputy Commissioner                                                                                               
Department of Revenue                                                                                                           
Juneau, AK                                                                                                                      
POSITION STATEMENT:  Responded to questions related to SB 104                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  HOLLIS FRENCH  reconvened  the  Senate Judiciary  Standing                                                             
Committee meeting at 5:53:33 PM. All members were present.                                                                    
                                                                                                                                
              SB 104-NATURAL GAS PIPELINE PROJECT                                                                           
                                                                                                                              
CHAIR FRENCH  announced the committee  is continuing to  work its                                                               
way  through an  overview of  the Judiciary  committee substitute                                                               
(CS) for SB 104 and Version O has been adopted.                                                                                 
                                                                                                                                
DAN BULLOCK  said he was going  to back up from  where he stopped                                                               
this afternoon.                                                                                                                 
                                                                                                                                
Page 21, line 27, and page  22, line 26, have similar provisions.                                                               
The  Senate  resources version  had  language  that said  if  the                                                               
Federal Energy  Regulatory Commission  doesn't have  a rebuttable                                                               
presumption in  effect, rolled-in  rate treatment applies  to the                                                               
cost of  the expansion  of the project  and the  person receiving                                                               
the  inducement could  participate  in the  hearing before  FERC.                                                               
That  language is  deleted from  Version O  for both  the royalty                                                               
inducement  and the  tax inducement.  Effectively, the  provision                                                               
dealt  with who  could argue  before FERC;  it didn't  affect the                                                               
FERC decision.                                                                                                                  
                                                                                                                                
5:54:56 PM                                                                                                                    
Page 24, line 5, adds  the clarifying language "issued under this                                                               
chapter" following the word "license".                                                                                          
                                                                                                                                
Page 24,  lines 6-7,  have language  to require  a constitutional                                                               
challenge  to  this  chapter,  in  the  court  of  the  state  of                                                               
competent jurisdiction  so it directs  the challenge  to superior                                                               
court.  He  explained  that  in  the 1960s  K  &  L  Distributors                                                               
investment  credits   case,  the  court  said   even  though  the                                                               
legislature put  in language  saying the  decision was  final and                                                               
not subject to appeal, the  court would still consider the appeal                                                               
on a due process challenge.                                                                                                     
                                                                                                                                
CHAIR FRENCH  recapped saying a  person's due process  rights can                                                               
only  be  restricted  so  far  before  the  court  steps  in  and                                                               
overrides the attempted restriction.                                                                                            
                                                                                                                                
MR. BULLOCK continued to highlight changes in Version O.                                                                        
                                                                                                                                
Page 24, lines  24-28, relate to the commitment of  the state not                                                               
to give  the same benefits  to a competing pipeline  project that                                                               
are given  to the license in  this Act. The assurance  applies to                                                               
giving inducements to producers that  might use the other line as                                                               
well as benefits  to the competing gas pipeline.  There's still a                                                               
treble damage, but  in Version O they are three  times the amount                                                               
of the  expenditures incurred and  paid by the licensee  that are                                                               
qualified under  43.90.110. Basically,  it's a narrower  group of                                                               
expenses that are tripled.                                                                                                      
                                                                                                                                
Page  25, lines  5-11,  state that  preferential  royalty or  tax                                                               
treatment   doesn't   include   specific   things   outlined   in                                                               
subparagraphs  (A),  (B),   and  (C).  This  is   so  the  normal                                                               
administration of tax  and royalty programs and  applying the law                                                               
isn't considered a preferential royalty  or tax treatment even if                                                               
it might happen to benefit a competing line.                                                                                    
                                                                                                                                
SENATOR  THERRIAULT asked  if that  means that  the agency  could                                                               
continue doing things such as the Oooguruk royalty modification.                                                                
                                                                                                                                
MR.  BULLOCK said  probably,  but  it could  be  arguable if  the                                                               
purpose of  the adjustment  was to  benefit the  particular line.                                                               
Generally, if  a law  passes that the  tax structure  is changed,                                                               
that isn't prevented here.                                                                                                      
                                                                                                                                
5:58:47 PM                                                                                                                      
Subparagraph  (B)  talks about  statutory  change  or changes  in                                                               
regulations. Subparagraph  (C) on line  10 of page 25,  says "the                                                               
benefits of  a large project  permit coordinator authorized  by a                                                               
law in  effect on the  effective date  of this section."  DNR has                                                               
large project permit coordinators  that aren't clearly authorized                                                               
by a particular statute like  the gas line coordinator created in                                                               
the  AGIA bill  even though  they  do have  general authority  to                                                               
manage how permits are considered.  That's why the reference is a                                                               
bit vague, he said.                                                                                                             
                                                                                                                                
Page 25, lines 13-16, relate to  the assignment of all or part of                                                               
a  license, including  rights and  obligations.  It requires  the                                                               
commissioners  to   publish  notice  of  a   proposed  assignment                                                               
including giving  the legislature  notice and providing  at least                                                               
30 days for public review and comment.                                                                                          
                                                                                                                                
Page  25,  line 31,  through  page  26,  line  4, relate  to  the                                                               
assignment  of  the voucher  under  43.90.330.  He suggested  the                                                               
committee ask the administration  to clarify whether the transfer                                                               
of the  voucher is  specifically between two  utilities or  if it                                                               
could be between a utility and the gas producer.                                                                                
                                                                                                                                
PATRICK  GALVIN, Commissioner,  Department of  Revenue, explained                                                               
that the voucher could be  transferred between two utilities, but                                                               
it wouldn't be of any value  until it's transferred to a producer                                                               
who  would use  it  for  the royalty  provisions.  It  has to  be                                                               
somebody that  will be  paying the production  tax, he  said. The                                                               
voucher  may be  transferred  between  non-producer entities  but                                                               
ultimately, the purpose  of the voucher is to  allow a non-lessee                                                               
to be able to participate in the inducement.                                                                                    
                                                                                                                                
6:04:39 PM                                                                                                                      
CHAIR FRENCH  posed a hypothetical situation.  Calpine commits to                                                               
ship  1 bcf/day  in the  pipeline and  receives a  voucher that's                                                               
good  for royalty  in  kind and  a  tax freeze  that  apply to  1                                                               
bcf/day. Calpine takes that voucher  to BP and ConocoPhillips and                                                               
asks to buy  .5 bcf/day from each. Now the  voucher is split with                                                               
regard to those  two producers so each producer has  a royalty in                                                               
kind and  royalty in value switching  deal and a tax  freeze deal                                                               
good  for  .5  bcf/day.  He   asked  if,  in  this  hypothetical,                                                               
subsection (d) on page 25,  which talks about "a person receiving                                                               
a voucher" would be referring to Calpine.                                                                                       
                                                                                                                                
MARCIA DAVIS,  Deputy Commissioner,  Department of  Revenue, said                                                               
subsection (d)  was intended to  address only the  gas purchaser.                                                               
In the  hypothetical, Calpine's voucher  can only be  assigned if                                                               
Calpine  transfers the  complete contract  rights it  has in  the                                                               
pipeline to someone  else or if Calpine is sold  to another legal                                                               
entity.  The   provision  was  only   intended  to   address  the                                                               
assignment   by  the   originator   of   the  pipeline   capacity                                                               
acquisition  in  the   initial  pipeline.  It's  non-transferable                                                               
amongst the producers and the duration is limited.                                                                              
                                                                                                                                
6:07:01 PM                                                                                                                      
CHAIR FRENCH  asked if  Calpine could sell  the voucher  to Shell                                                               
Oil.                                                                                                                            
                                                                                                                                
MS. DAVIS said  yes; Calpine could transfer the  voucher to Shell                                                               
Oil or  anyone as  long as  it transfers  the entire  capacity it                                                               
acquired at the  initial binding open season. It  can't be split.                                                               
"We didn't  want to  end up  with people  carving out  pieces, so                                                               
just  as  a  producer  can  only transfer  the  royalty  and  tax                                                               
benefits in connection with the  sale of their entire North Slope                                                               
interest or the company sale itself,  we wanted to have a similar                                                               
very large rope  around this piece so that we  didn't end up with                                                               
a huge administration problem of tracking it," she stated.                                                                      
                                                                                                                                
MR. BULLOCK  raised the  question of  one gas  buyer transferring                                                               
the voucher to another gas buyer.                                                                                               
                                                                                                                                
MS. DAVIS  explained that a lot  of the detailed language  in the                                                               
voucher section  is being deferred  until the bill  is considered                                                               
in the next committee.  "The only way a buyer of  gas is going to                                                               
be  able to  transfer this  to another  buyer of  gas is  if they                                                               
actually  transfer  their  entire  capacity in  the  pipeline  to                                                               
another buyer," she stated.                                                                                                     
                                                                                                                                
MR.  BULLOCK said  he was  wondering  if a  utility in  Fairbanks                                                               
could transfer the  voucher to a utility in Anchorage  or if this                                                               
simply addresses a transfer from a buyer to a gas producer.                                                                     
                                                                                                                                
MS.  DAVIS explained  that the  state  would only  be focused  on                                                               
Calpine. As  part of the  regulatory process, any time  a Calpine                                                               
buys X  volume of gas from  Arco for a particular  duration, that                                                               
information flows back to DNR and  DOR so both agencies will know                                                               
who in  entitled to the tax  and royalty, in what  amount and for                                                               
how long.                                                                                                                       
                                                                                                                                
CHAIR FRENCH suggested a flow chart would be helpful.                                                                           
                                                                                                                                
6:10:54 PM                                                                                                                    
MR. BULLOCK continued to highlight changes in Version O.                                                                        
                                                                                                                                
Page 26,  lines 8-11, is  the provision for developing  a program                                                               
for  employment training  related  to the  project.  There is  no                                                               
change,  it's simply  in a  different location.  The severability                                                               
provision  was  here  originally  and  it's  been  moved  to  the                                                               
uncodified law.                                                                                                                 
                                                                                                                                
Page 28, lines  5-6, relate to an exclusion  from the procurement                                                               
code  for certain  contracts. The  only change  is to  remove the                                                               
reference to  abandonment to be  consistent with  the abandonment                                                               
section,  which  only focuses  on  whether  or not  something  is                                                               
uneconomic.                                                                                                                     
                                                                                                                                
Page 30, lines 9-27, are the three uncodified sections.                                                                         
                                                                                                                                
Section  5  says  that  as   soon  as  practicable  requests  for                                                               
applications  will be  issued. It  says the  legislature has  the                                                               
intent for it to happen within 90 days.                                                                                         
                                                                                                                                
Section 6  is an intent section  that asks the court  to expedite                                                               
cases  that are  related to  the project  that would  be licensed                                                               
under this Act.                                                                                                                 
                                                                                                                                
Section 7 is  the severability section that  was formerly located                                                               
in codified law.                                                                                                                
                                                                                                                                
Recess from 6:13:19 PM to 6:15:18 PM.                                                                                       
                                                                                                                                
CHAIR FRENCH reconvened  the meeting and recapped  the issues for                                                               
the  committee  to consider.  The  first  is  whether or  not  to                                                               
affirmatively include  a sentence that  says that if the  bill is                                                               
not  approved, the  license  may  not be  issued.  He noted  that                                                               
Senator  Wielechowski  has a  concern  about  whether the  phrase                                                               
"final administrative action"  should be included in  the bill or                                                               
not. There  are some policy  issues related  to that being  in or                                                               
out, he added.                                                                                                                  
                                                                                                                                
CHAIR FRENCH asked Senator Wielechowski  to state the idea of the                                                               
AOGCC.                                                                                                                          
                                                                                                                                
6:16:10 PM                                                                                                                    
SENATOR WIELECHOWSKI said the suggested  amendment stems from the                                                               
hearings yesterday  regarding AOGCC. Everyone assumes  there will                                                               
be enough  gas offtake available,  but it isn't a  certainty. The                                                               
following  is a  contingency to  provide a  safety valve  for all                                                               
parties, he stated.                                                                                                             
                                                                                                                                
     Page 15, line 15, following "net present value of the                                                                      
     project":                                                                                                                  
           Insert "are necessary as a result of AOGCC                                                                           
     rulings"                                                                                                                   
                                                                                                                                
     Page 15, line 19, following "and":                                                                                         
            Insert "except for changes required as a                                                                            
     result of AOGCC rulings"                                                                                                   
                                                                                                                                
SENATOR HUGGINS asked what the administration thinks.                                                                           
                                                                                                                                
6:17:30 PM                                                                                                                    
MS. DAVIS said we're comfortable  that 4.3 bcf/day to 4.5 bcf/day                                                               
is  a reasonable  design criteria  for a  pipeline off  the North                                                               
Slope, but  we all know  that there's  an uncertainty as  to what                                                               
the gas  offtake rate will be  on the Slope over  time. Inserting                                                               
the  suggested language  might make  applicants  more willing  to                                                               
step up to the plate and commit to projects.                                                                                    
                                                                                                                                
SENATOR HUGGINS said  he wants to make sure this  doesn't allow a                                                               
modification that  would ultimately  be of questionable  value to                                                               
the state.                                                                                                                      
                                                                                                                                
MS. DAVIS said there's still  the requirement for approval by the                                                               
commissioners and  there's also the economic  backstop of whether                                                               
a project is  uneconomic. We do have to have  some comfort that a                                                               
company isn't  going to  spend millions  of dollars  on something                                                               
they think is not economic, she stated.                                                                                         
                                                                                                                                
SENATOR HUGGINS mentioned the maximum  benefit factor and said he                                                               
wants to make sure we can live with our measuring stick.                                                                        
                                                                                                                                
MS. DAVIS said the ultimate limiter  is how much gas can come off                                                               
the North  Slope and everyone  will have to  deal with that  as a                                                               
commercial reality.                                                                                                             
                                                                                                                                
SENATOR HUGGINS said, "Or additional exploration."                                                                              
                                                                                                                                
MS. DAVIS agreed and said that would modify all projects.                                                                       
                                                                                                                                
MR. BULLOCK said his reading is  that if the economics are headed                                                               
south, the  first thing  is to  see if  the project  can continue                                                               
with a  reasonable return  to the  state. If  not, you'd  look at                                                               
whether the project  has become uneconomic, and  after that you'd                                                               
go to  the section on  abandonment. "This  gives you a  chance to                                                               
stop and look at it and see where  you are, see whether it can be                                                               
salvaged  or successfully  modified,  and then  you can  continue                                                               
with the project."                                                                                                              
                                                                                                                                
6:22:31 PM                                                                                                                    
CHAIR FRENCH  said the next  item he's identified as  a potential                                                               
amendment  is on  page 17.  The question  is whether  to use  the                                                             
national roster for all arbitrators that are being selected.                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI relayed  that there  are probably  very few                                                               
arbitrators that can  do these kinds of cases and  in his opinion                                                               
the entire national roster should  be open. We pick an arbitrator                                                               
from the entire  roster, the other side picks  an arbitrator from                                                               
the entire roster,  and then those two get together  and pick the                                                               
third arbitrator from  the entire roster. "I don't  think we have                                                               
that  right now  so  we  would want  to  add  some language  that                                                               
clarifies that," he said.                                                                                                       
                                                                                                                                
CHAIR FRENCH  said he's had  the same  general idea in  mind from                                                               
the beginning.                                                                                                                  
                                                                                                                                
CHAIR  FRENCH highlighted  the concern  that any  two arbitrators                                                               
that agree  that the project is  uneconomic, could put an  end to                                                               
it. Although  that might be  the right decision, there  should to                                                               
be a  specific avenue  of appeal if  the arbitrators  have abused                                                               
their discretion.  "We need  to at least  have some  guideline to                                                               
our court  should they take up  the question of whether  that was                                                               
the correct  decision." He said  he'd prepare an  amendment along                                                               
those lines.                                                                                                                    
                                                                                                                                
6:24:58 PM                                                                                                                    
MR.  BULLOCK said  this  would  be similar  to  an  appeal of  an                                                               
administrative decision.  The court  would look at  the decisions                                                               
that can be  made within the discretion of  the arbitration board                                                               
and  the  commissioners  when  they're   going  through  all  the                                                               
applications. They'll look  at the decision that was  made by the                                                               
panel  and they'll  look at  the record  to see  if the  evidence                                                               
supports  the  decision   that  was  made.  If   there  wasn't  a                                                               
reasonable decision based on the  evidence before them, that's an                                                               
abuse of  discretion. "In other  words, the court  avoids second-                                                               
guessing a fact-finding  decision unless they look  at the record                                                               
that was  made and  say it's just  so far out  of line  that it's                                                               
inconsistent with the evidence."                                                                                                
                                                                                                                                
CHAIR  FRENCH summarized  that the  arbitrators are  held to  the                                                               
same standard of  review that the commissioners are  held to when                                                               
they make their decisions.                                                                                                      
                                                                                                                                
MR. BULLOCK agreed.                                                                                                             
                                                                                                                                
SENATOR  WIELECHOWSKI said  he might  disagree  with Mr.  Bullock                                                               
just a  bit. Drawing on his  own experience he advised  that it's                                                               
virtually  impossible to  overturn  an  arbitration decision.  He                                                               
suggested the  committee might  want to consider  having it  be a                                                               
substantial  evidence  decision so  as  to  give the  court  some                                                               
leeway.  He opined  that  if  nothing is  done,  the courts  will                                                               
administer this  under an  abuse of  discretion, which  is nearly                                                               
impossible to  overturn. Maybe  we want that,  he said.  Also, he                                                               
isn't  sure that's  actually the  standard for  commissioners. He                                                               
believes  it's more  a substantial  evidence standard  where they                                                               
look  and ask  what the  substantial evidence  is to  support the                                                               
decision. We may want to give  the court that right of appeal, he                                                               
said.                                                                                                                           
                                                                                                                                
6:27:06 PM                                                                                                                    
SENATOR  McGUIRE  spoke  in  support  of  keeping  the  abuse  of                                                               
discretion standard  because it's a commercial  contract and it's                                                               
a commercial situation. She expressed  the view that parties will                                                               
be  more comfortable  to apply  for a  license if  they know  the                                                               
method  by  which  the  economic  determinations  will  be  made.                                                               
Changing that well-recognized standard  might make parties leery.                                                               
Also, there  needs to  be some finality  so that  the arbitration                                                               
process means something, she stated.                                                                                            
                                                                                                                                
CHAIR  FRENCH described  it as  a  tough policy  call because  it                                                               
could be  either party  that wants  out. He  said he  agrees that                                                               
there does have to be finality.                                                                                                 
                                                                                                                                
MR.  BULLOCK said  Senator Wielechowski  brings up  a good  point                                                               
because the  court is flexible  in this area. Sometimes  it looks                                                               
like it's abuse  of discretion and it's kind  of like substantial                                                               
evidence so they  use a combination. Normally  the court reserves                                                               
the  right  to  decide  questions   of  law  that  don't  require                                                               
expertise,  but  sometimes  it's surprising  what  they  consider                                                               
agency expertise  and then defer  to it  compared to an  issue on                                                               
which they would exercise their independent judgment.                                                                           
                                                                                                                                
6:29:03 PM                                                                                                                    
CHAIR  FRENCH said  the last  item is  the issue  of whether  the                                                               
legislature   has  the   constitutional   authority  to   require                                                               
legislative confirmation  of the  AGIA coordinator when  it's not                                                               
the  sort  of post  that  requires  legislative confirmation.  He                                                               
asked Senator Therriault if he'd decided to offer an amendment.                                                                 
                                                                                                                                
SENATOR THERRIAULT  said he would.  "We could set  up legislative                                                               
confirmation of  lots of governor  appointments and we  don't and                                                               
nor should we," he stated.                                                                                                      
                                                                                                                                
SENATOR  McGUIRE said  she doesn't  disagree  but it's  splitting                                                               
hairs.  As a  matter of  correcting the  record she  advised that                                                               
Drue  Pearce was  appointed  by the  president  and confirmed  by                                                               
Congress.                                                                                                                       
                                                                                                                                
6:30:37 PM                                                                                                                    
CHAIR FRENCH  summarized that the  committee has  identified five                                                               
issues. He  said he'd prepare  written amendments on items  1 and                                                               
4; he'd  ask Senator Wielechowski  to prepare  written amendments                                                               
on issues 2  and 3; and he'd ask Senator  Therriault to prepare a                                                               
written  amendment  on item  5.  He  asked  members to  have  the                                                               
amendments in  his office  by 10:00  am to  make an  orderly exit                                                               
strategy possible.                                                                                                              
                                                                                                                                
6:31:19 PM                                                                                                                    
SENATOR WIELECHOWSKI mentioned that in  an earlier hearing he had                                                               
requested  a  definition  of a  competing  natural  gas  pipeline                                                               
project.  He directed  attention to  the definition  on page  25,                                                               
lines 2-4, and  said he's still not satisfied.  His worry relates                                                               
to precluding the potential for  other projects for in-state gas.                                                               
He advised that he'd work on a definition.                                                                                      
                                                                                                                                
SENATOR McGUIRE said she's equally  troubled by the definition of                                                               
treble  damages. She  recently heard  a presentation  for an  in-                                                               
state  line to  potentially  take gas  to  her constituents.  Who                                                               
knows whether  that will be  a reality, she  said, but it  can be                                                               
clearly envisioned and  you certainly wouldn't want  the state to                                                               
have to pay  treble damages over something  like that. Responding                                                               
to a question, she confirmed that it's the ENSTAR proposal.                                                                     
                                                                                                                                
CHAIR FRENCH  acknowledged that Senator McGuire  would be working                                                               
on an amendment.                                                                                                                
                                                                                                                                
SENATOR   HUGGINS   asked   Chair   French   if   he'd   received                                                               
clarification  on  the  question  of "any  project"  versus  "the                                                               
project" relating to the pipeline coordinator functions.                                                                        
                                                                                                                                
CHAIR FRENCH  asked Mr. Bullock  if he  had received his  memo on                                                               
that subject.                                                                                                                   
                                                                                                                                
MR. BULLOCK said no.                                                                                                            
                                                                                                                                
CHAIR  FRENCH   recapped  the  question  is   whether  there  are                                                               
constitutional  problems   associated  with  having   a  pipeline                                                               
coordinator working on a single  project. He asked him to compare                                                               
and contrast that to the federal  coordinator who can work on any                                                               
project.  I want  to make  sure there  aren't any  constitutional                                                               
impediments   associated   with   assigning  a   state   pipeline                                                               
coordinator to work on a single project, he said.                                                                               
                                                                                                                                
CHAIR FRENCH asked if there were other concerns or issues.                                                                      
                                                                                                                                
SENATOR THERRIAULT said he's likely to  bring up the issue of the                                                               
length of the legislative approval process.                                                                                     
                                                                                                                                
6:34:38 PM                                                                                                                    
SENATOR McGUIRE questioned whether she's  the only member who had                                                               
concerns about  treble damages  and then she  asked Ms.  Davis to                                                               
explain why that amount was selected.                                                                                           
                                                                                                                                
MS. DAVIS explained  that the purpose was to  pique the attention                                                               
of the applicants to let them  know the state is serious. "In the                                                               
totality of  it, we just  felt 300 percent  had the zing  and had                                                               
the  oomph that  we needed  to make  sure that  independents came                                                               
forward."                                                                                                                       
                                                                                                                                
SENATOR McGUIRE  asked if  she believes  that the  ENSTAR project                                                               
would be deemed a non-competing project.                                                                                        
                                                                                                                                
MS. DAVIS explained  that the definition for  a competing natural                                                               
gas pipeline  project on page  25, lines 2-4, was  developed with                                                               
the understanding  that in-state gas  usage would be  perhaps 400                                                               
mcf over the  next 20 years. It was designed  to capture pipeline                                                               
pieces  that truly  wouldn't be  competitive  with a  3.5 to  4.5                                                               
bcf/day project so bullet lines and  spur lines coming off a main                                                               
pipeline   were  reviewed.   Without  the   qualifier,  competing                                                               
pipeline  projects  were  envisioned  to be  ones  that  actually                                                               
started  in the  same location  and ended  in the  same location.                                                               
Because  we have  a comfort  level  that the  major projects  are                                                               
looking to  go out of state,  we don't see spurs  or bullet lines                                                               
being competitive  and affecting  the economic  considerations of                                                               
the  big  projects,  she  said.   Acknowledging  that  she  isn't                                                               
familiar with the SEMCO proposal,  she asked what the forecast is                                                               
for volume carriage.                                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI recalled it was a "b."                                                                                     
                                                                                                                                
MS. DAVIS  asked if it  envisions going  to Valdez or  if there's                                                               
any export aspect.                                                                                                              
                                                                                                                                
CHAIR FRENCH said there is to the LNG plant.                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI clarified it's the LNG plant in Kenai.                                                                     
                                                                                                                                
MS. DAVIS said  that's not actually in-state;  it's in-state plus                                                               
an  export  component.   "Once  you  go  there  I   think  it  is                                                               
problematic to say  that a project that is proposing  to take gas                                                               
that is  one 'b' now could  be two 'b' after  compression isn't a                                                               
competitive  project." Carving  out in-state  usage is  okay, but                                                               
going beyond  that damages the  concept of what is  a competitive                                                               
pipeline.                                                                                                                       
                                                                                                                                
CHAIR FRENCH  suggested adding "an  in-state" before  "market" on                                                               
page 25, line 4.                                                                                                                
                                                                                                                                
MS. DAVIS said sure.                                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI said he doesn't  see how that project really                                                               
competes. Potentially that project will  ship gas to Asia whereas                                                               
all the projections  here show shipping gas to  western Canada or                                                               
western United States.                                                                                                          
                                                                                                                                
MS.  DAVIS agreed.  If one  entity  does a  pipeline and  another                                                               
entity wants to do a spur line and  take it to Kenai and ship LNG                                                               
out, the only  way that would be a competing  pipeline project is                                                               
if the state  selects a project that is taking  its gas to Valdez                                                               
for LNG shipment.  But if the state selects a  project that moves                                                               
gas from the  North Slope to Alberta and then  Chicago, a project                                                               
taking  gas  to  Kenai  for   LNG  export  to  Asia  wouldn't  be                                                               
competitive because  it doesn't lay  in the same trough  and it's                                                               
not  taking  gas to  the  same  markets. Originally  a  competing                                                               
natural gas project  was envisioned to ask if it's  taking gas to                                                               
the  same markets  and  the answer  for LNG  was  no compared  to                                                               
Alberta  or Chicago.  Then moving  gas  from the  North Slope  to                                                               
Fairbanks or  Anchorage with off-take  points was  considered and                                                               
that's  basically shipping  gas in  the same  trough to  the same                                                               
destinations. We don't want that  to be considered competing, she                                                               
said, so the 500 mcf/day escape clause was inserted.                                                                            
                                                                                                                                
SENATOR  HUGGINS commented  that when  you  look at  the unit  of                                                               
measure by volume  it doesn't matter where it goes.  "If you need                                                               
Y volume  and they're  taking Y  minus 2, then  you run  into the                                                               
same problem," he said.                                                                                                         
                                                                                                                                
MS. DAVIS agreed and said that's  why the suggestion of making it                                                               
in-state mediates it to an extent.  There isn't going to be a 3.5                                                               
bcf/day or 4 bcf/day pipeline  project proposed for in-state, she                                                               
said.  It'll  be an  out  of  state  proposal  so the  spur  line                                                               
delivering in-state gas will be excepted by this provision.                                                                     
                                                                                                                                
CHAIR FRENCH said he would assign that definition to himself.                                                                   
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair French adjourned the meeting at 6:42:36 PM.                                                                             
                                                                                                                                

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