Legislature(2005 - 2006)SENATE FINANCE 532
06/05/2006 09:00 AM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV
| Audio | Topic |
|---|---|
| Start | |
| SB2003 || SB2004 | |
| Louisiana Cutler, Preston Gates & Ellis | |
| James Barnes, Barnes & Cascio | |
| Larry Ostrovsky, Department of Law | |
| Kevin Jardell, Office of the Governor | |
| Joseph K. Donohue, Preston Gates & Ellis | |
| James Barnes, Barnes & Cascio | |
| Eddy Jeans, Department of Education and Early Development | |
| Steve Van Sant, State Assessor | |
| Donald Shepler, Greenberg and Traurig | |
| Bob Loeffler, Morrison & Foerster | |
| Donald Shepler and Bob Loeffler | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB2003 | TELECONFERENCED | |
| += | SB2004 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT
June 5, 2006
9:26 a.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Lyda Green
Senator Gary Wilken
Senator Con Bunde
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Senator Thomas Wagoner
Senator Ben Stevens
Senator Kim Elton
Senator Albert Kookesh
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Gary Stevens
Senator Gene Therriault
COMMITTEE CALENDAR
SENATE BILL NO. 2003
"An Act establishing the Alaska Natural Gas Pipeline Corporation
to finance, own, and manage the state's interest in the Alaska
North Slope natural gas pipeline project and relating to that
corporation and to subsidiary entities of that corporation;
relating to owner entities of the Alaska North Slope natural gas
pipeline project, including provisions concerning Alaska North
Slope natural gas pipeline project indemnities; establishing the
gas pipeline project cash reserves fund in the corporation and
establishing the Alaska natural gas pipeline construction loan
fund in the Department of Revenue; making conforming amendments;
and providing for an effective date."
HEARD AND HELD
SENATE BILL NO. 2004
"An Act relating to the Alaska Stranded Gas Development Act,
including clarifications or provision of additional authority
for the development of stranded gas fiscal contract terms;
making a conforming amendment to the Revised Uniform Arbitration
Act; relating to municipal impact money received under the terms
of a stranded gas fiscal contract; and providing for an
effective date."
MOVED CSSB 2004(NGD) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 2003
SHORT TITLE: NATURAL GAS PIPELINE CORPORATION
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (S) READ THE FIRST TIME - HELD ON SECY'S
DESK
06/01/06 (S) REFERRALS - NGD
06/01/06 (S) NGD AT 1:30 PM SENATE FINANCE 532
06/01/06 (S) Heard & Held
06/01/06 (S) MINUTE(NGD)
06/02/06 (S) NGD AT 11:15 AM SENATE FINANCE 532
06/02/06 (S) Heard & Held
06/02/06 (S) MINUTE(NGD)
06/03/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
06/03/06 (S) Heard & Held
06/03/06 (S) MINUTE(NGD)
06/04/06 (S) NGD AT 2:00 PM SENATE FINANCE 532
06/04/06 (S) Heard & Held
06/04/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 7:00 AM SENATE FINANCE 532
06/05/06 (S) Heard & Held
06/05/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
BILL: SB 2004
SHORT TITLE: STRANDED GAS DEVELOPMENT ACT AMENDMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (S) READ THE FIRST TIME - HELD ON SECY'S
DESK
06/01/06 (S) REFERRALS - NGD
06/01/06 (S) NGD AT 1:30 PM SENATE FINANCE 532
06/01/06 (S) Heard & Held
06/01/06 (S) MINUTE(NGD)
06/02/06 (S) NGD AT 11:15 AM SENATE FINANCE 532
06/02/06 (S) Heard & Held
06/02/06 (S) MINUTE(NGD)
06/03/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
06/03/06 (S) Heard & Held
06/03/06 (S) MINUTE(NGD)
06/04/06 (S) NGD AT 2:00 PM SENATE FINANCE 532
06/04/06 (S) Heard & Held
06/04/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 7:00 AM SENATE FINANCE 532
06/05/06 (S) Heard & Held
06/05/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
WITNESS REGISTER
LOUISIANA CUTLER
Preston Gates & Ellis
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau AK 99811-0001
POSITION STATEMENT: Spoke about separation-of-powers issues
during hearing on SB 2003 and SB 2004.
DONALD SHEPLER
Greenberg Traurig, LLP
Consultant to the Legislature
POSITION STATEMENT: Commented on proposed amendments during
hearing on SB 2003 and SB 2004.
JAMES BARNES
Barnes & Cascio LLP
Consultant to the Legislature
POSITION STATEMENT: Commented on proposed amendments during
hearing on SB 2003 and SB 2004.
SENATOR GENE THERRIAULT
Alaska State Legislature
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented Amendments 13 and 16 and
commented on SB 2004.
LARRY OSTROVSKY, Chief Assistant Attorney General-
Statewide Section Supervisor
Oil, Gas & Mining Section
Civil Division (Anchorage)
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Answered questions during hearing on
SB 2003 and SB 2004.
KEVIN JARDELL, Legislative Liaison
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Testified during hearing on SB 2003 and
SB 2004.
JOSEPH K. DONOHUE
Preston Gates & Ellis
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Answered questions during hearing on
SB 2003 and SB 2004.
EDDY JEANS, Director
School Finance
Department of Education and Early Development (DEED)
801 West 10th Street
Juneau, AK 99801-1894
POSITION STATEMENT: Explained Amendment 14 to SB 2004 and
answered questions.
STEVE VAN SANT, State Assessor
Division of Community Advocacy
Department of Commerce, Community & Economic Development
550 West 7th Avenue, Suite 1770
Anchorage, AK 99501-3510
POSITION STATEMENT: Answered questions relating to Amendment 14
to SB 2004.
JIM BALDWIN
Counsel to the Office of the Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Testified on Amendment 14 to SB 2004.
BOB LOEFFLER
Morrison & Foerster
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Answered questions relating to Amendment 16
to SB 2004.
ACTION NARRATIVE
CHAIR RALPH SEEKINS called the Senate Special Committee on
Natural Gas Development meeting to order at 9:26:10 AM. An at-
ease was taken until 9:26:46 AM, at which time the following
members were present: Senators Bert Stedman, Ben Stevens, Gary
Wilken, Con Bunde, Thomas Wagoner, Lyda Green and Chair Seekins.
Senators Fred Dyson, Lyman Hoffman, Donny Olson, Kim Elton and
Albert Kookesh arrived soon thereafter. Also in attendance were
Senators Gary Stevens and Gene Therriault.
SB 2003-NATURAL GAS PIPELINE CORPORATION
SB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS
CHAIR SEEKINS announced SB 2003 and SB 2004 to be up for
consideration. Amendment 10A to SB 2004 had been adopted at the
7:05 a.m. meeting on this same date.
9:28:27 AM
SENATOR WAGONER withdrew the remainder of Amendment 10 to
SB 2004 (text provided in the 7:05 a.m. minutes), items 10B
through 10Q.
CHAIR SEEKINS indicated some of these issues would be looked at
under SB 2003, relating to the Alaska Natural Gas Pipeline
Corporation ("PipeCo" or "AK Pipe"). Returning to the
separation-of-powers issue, he called upon Ms. Cutler.
^Louisiana Cutler, Preston Gates & Ellis
LOUISIANA CUTLER, Preston Gates & Ellis, Counsel to the
Governor, highlighted a difference in her views and those of
Dennis Bailey, Legislative Legal Services attorney. She opined
that the separation-of-powers problem is much more acute with
respect to approval of collateral agreements. Although it
exists as well with regard to the fiscal contract itself, it is
less acute because the legislature has two articulated powers
related to taxing.
She explained that Article IX, Section 1, of the constitution
indicates the legislature can contract away the taxing power but
never surrender it; Section 4 talks about how the power can be
contracted away. Additionally, there is the legal doctrine of
unconstitutional delegation of the taxing powers to begin with:
even if it weren't contracted away for a while, there could
still be an unconstitutional delegation if the legislature were
not involved in that decision.
She surmised there probably wouldn't be any limited liability
company (LLC) agreement if the state didn't take a share in the
pipeline. It isn't directly connected to the taxing power.
Although on a bigger scale, it is akin to other contracts that
public corporations and the administration frequently enter into
without legislative approval of the exact language; this is in
contrast to providing statutory authorization to actually enter
into a contract. Hence Ms. Cutler reiterated the belief that
the separation-of-powers problem is worse with respect to the
collateral agreements. She underscored that even Mr. Bailey
recognizes there is a problem.
9:32:18 AM
SENATOR STEDMAN expressed concern about adopting an amendment
despite advice, from both Legislative Legal Services and the
administration's counsel, that it is unconstitutional.
CHAIR SEEKINS said it is an unanswered question. He mentioned
time spent by the Senate Judiciary Standing Committee, which he
chairs, on the issue of the fiscal contract and the
legislature's requirement for final approval. He said the
normal process would be for the commissioner, after publishing
final findings of financial interest and a determination, to
execute the contract. Amendments in 1998, however, gave rise to
a constitutional issue: this interjects the legislature into
what normally is an administrative process, and it says PipeCo's
board of directors cannot approve a collateral agreement until
the legislature has authorized it, to Chair Seekins' belief - or
the commissioner in the first 180 days.
MS. CUTLER affirmed that.
SENATOR STEDMAN voiced concern about where the remaining
components of withdrawn Amendment 10 had come from, and whether
the consultants hired by the legislature had thought of them or
had been handed them. Characterizing some as poison pills, he
expressed disappointment that they wouldn't be addressed
individually.
CHAIR SEEKINS suggested the opportunity to review some and
question the consultants further would arise under SB 2003.
9:35:22 AM
SENATOR BUNDE remarked that the idea of legislative approval of
a basic gas pipeline contract likely will be the subject of a
court suit on the separation of powers. He surmised the
amendment posed no more jeopardy than the notion that the
legislature would reconvene later this summer for a yes-or-no
vote on a pipeline contract. He suggested there currently are
dueling attorneys and consultants.
CHAIR SEEKINS explained one reason for passage of SB 2001 by the
Senate: If constitutional questions are to be decided by the
court, original jurisdiction will be the Alaska Supreme Court,
and they must be brought within 120 days of execution of the
contract; thus constitutional questions can be answered early
on. He noted some challenges are anticipated on that issue, and
perhaps this one as well.
CHAIR SEEKINS returned attention to Amendment 12 to SB 2004,
labeled 24-GS2046\A.14, Bailey, 6/4/06, which read:
A M E N D M E N T 12
OFFERED IN THE SENATE
TO: SB 2004
Page 1, line 12, following "state":
Insert ", including gas pipeline pricing that
encourages further gas exploration"
CHAIR SEEKINS informed members that in order to make that
sentence consistent with what the drafters believe the intent to
be, they suggest the following: insert "expansion" after
"pipeline".
9:37:52 AM
SENATOR GREEN moved to rescind the committee's action on 6/4/06
in adopting Amendment 12. There being no objection, it was so
ordered.
SENATOR HOFFMAN moved to adopt Amendment 12 to SB 2004, as
amended to include the aforementioned word "expansion". There
being no objection, it was so ordered.
9:39:43 AM
SENATOR WILKEN returned to withdrawn Amendment 10 to SB 2004.
He asked Senator Stedman to specify which components he believed
to be the most disturbing. He explained that if egregious items
will show up tomorrow or next month, he'd like to know about
them while the consultants who can address them are here.
SENATOR STEDMAN answered he hadn't marked those.
CHAIR SEEKINS requested that Senator Stedman work on it for the
future.
SENATOR BEN STEVENS highlighted what he termed a poison pill for
success, on page 3, lines 8-10, of Amendment 10, which read:
(6) the Operating Agreement must provide
that the entity may not effect a material change or
amendment to the Qualified Project Plan without the
review and authorization of the legislature;
He indicated the aforementioned document was funded with the
$125 million by the sponsors in 2000, and he suggested it is a
poison pill because it limits success. The team leaders of the
Qualified Project Plan are the experts - engineers and financial
members - that will build the line, he noted.
SENATOR STEDMAN informed members that one egregious component of
Amendment 10 was item (16):
(16) the Operating Agreement must provide
that the project entity shall use project financing
supported by federal guarantee instruments as defined
in the Alaska Natural Gas Pipeline Act to the maximum
extent available from the United States Treasury and
must limit the equity portion of project
capitalization to not more than 20 percent of total
capital;
He highlighted "must" and "shall", saying he read it as
specifying and controlling how the other members would have
their capital structure within this LLC.
SENATOR WAGONER pointed out he'd withdrawn these because of time
constraints, but suggested they could be brought back and
discussed individually if the committee so wished.
CHAIR SEEKINS proposed addressing components of withdrawn
Amendment 10 later, and going on to Amendment 11, labeled 24-
GS2046\A.11, Bailey, 6/3/06.
SENATOR DYSON withdrew Amendment 11, explaining that revised
language was being distributed as Amendment 13. He offered
Amendment 13 to SB 2004, labeled 24-GS2046\A.16, Bailey, 6/5/06,
which read:
A M E N D M E N T 13
OFFERED IN THE SENATE
TO: SB 2004
Page 6, following line 18:
Insert new bill sections to read:
"* Sec. 11. AS 43.82.400(a) is amended to read:
(a) If the commissioner develops a proposed
contract under AS 43.82.200 - 43.82.270, the
commissioner shall
(1) make preliminary findings and a
determination that the proposed contract terms
are in the long-term fiscal interests of the
state and further the purposes of this chapter;
[AND]
(2) prepare a proposed contract that
includes those terms and shall submit the
contract to the governor; and
(3) submit to the governor all
documents related to the ownership, governance,
management, control, and operation of the project
and participating entities at the same time the
contract is submitted under (2) of this
subsection.
* Sec. 12. AS 43.82.410 is amended to read:
Sec. 43.82.410. Notice and comment regarding
the contract. The commissioner shall
(1) give reasonable public notice of
the preliminary findings and determination made
under AS 43.82.400;
(2) make copies of the proposed
contract, the commissioner's preliminary findings
and determination, the documents required under
AS 43.82.400(a)(3), and, to the extent the
information is not required to be kept
confidential under AS 43.82.310, the supporting
financial, technical, and market data, including
the work papers, analyses, and recommendations of
any independent contractors used under
AS 43.82.240 available to the public and to
(A) the presiding officer of each
house of the legislature;
(B) the chairs of the finance and
resources committees of the legislature; and
(C) the chairs of the special
committees on oil and gas, if any, of the
legislature;
(3) offer to appear before the
Legislative Budget and Audit Committee to provide
the committee a review of the commissioner's
preliminary findings and determination, the
proposed contract, and the supporting financial,
technical, and market data; if the Legislative
Budget and Audit Committee accepts the
commissioner's offer, the committee shall give
notice of the committee's meeting to the public
and all members of the legislature; if the
financial, technical, and market data that is to
be provided must be kept confidential under
AS 43.82.310, the commissioner may not release
the confidential information during a public
portion of a committee meeting; and
(4) establish a period of at least 90
[30] days for the public and members of the
legislature to comment on the proposed contract
and the preliminary findings and determination
made under AS 43.82.400.
* Sec. 13. AS 43.82.430(b) is amended to read:
(b) After considering the material
described in (a) of this section and securing the
agreement of the other parties to the proposed
contract regarding any proposed amendments
prepared under (a) of this section, if the
commissioner determines that the contract is in
the long-term fiscal interests of the state, the
commissioner shall submit the contract with the
supporting documentation, including the documents
required under AS 43.82.400(a)(3) to the
governor.
* Sec. 14. AS 43.82.435 is amended to read:
Sec. 43.82.435. Legislative authorization.
The governor may transmit a contract developed
under this chapter with the supporting
documentation, including the documents required
under AS 43.82.400(a)(3) to the legislature
together with a request for authorization to
execute the contract. A contract developed under
this chapter is not binding upon or enforceable
against the state or other parties to the
contract unless the governor is authorized to
execute the contract by law. The state and the
other parties to the contract may execute the
contract within 60 days after the effective date
of the law authorizing the contract."
Renumber the following bill sections accordingly.
Page 10, line 23:
Delete "Sections 1 - 12, 15, 16, and 18"
Insert "Sections 1 - 16, 19, 20, and 22"
Page 10, line 25:
Delete "Section 17"
Insert "Section 21"
SENATOR DYSON asked Mr. Shepler and others to explain why
Amendment 13 is valuable.
9:45:01 AM
^Donald Shepler, Greenberg and Traurig
DONALD SHEPLER, Greenberg Traurig, LLP, Consultant to the
Legislature, introduced himself, informing listeners that he is
an attorney in his firm's Washington, D.C., office.
^James Barnes, Barnes & Cascio
JAMES BARNES, Barnes & Cascio LLP, Consultant to the
Legislature, explained that the state, in looking at this fiscal
contract, is being asked to make a current decision with respect
to the nature of its investment. He referred to the following
language in Amendment 13:
(3) submit to the governor all documents
related to the ownership, governance, management,
control, and operation of the project and
participating entities at the same time the contract
is submitted under (2) of this subsection.
He noted a board of directors typically wants to see those items
and be included in the decision. Mr. Barnes surmised the intent
of Amendment 13 is to give the state an opportunity to look at
the full picture of the investment to which it is being asked to
commit. While much of this information will have been obtained
at the decision point for the other parties - in perhaps four or
five years - the same isn't necessarily true for the state at
the point where it will consider the fiscal contract.
SENATOR BUNDE asked whether the issue is that the commissioners
don't have access to this information. He noted the governor
would have access through the commissioners.
MR. BARNES said he wasn't personally involved in drafting this
amendment. He deferred to Phillip Gildan, a consultant to the
legislature on teleconference.
The committee took an at-ease from 9:49:20 AM to 9:59:31 AM to
fax a copy of Amendment 13 to Mr. Gildan.
SENATOR DYSON moved to divide Amendment 13. Amendment 13A would
be all except page 2, lines 16-18, of the amendment.
Amendment 13B would be page 2, lines 16-18, as follows:
A M E N D M E N T 13B
(4) establish a period of at least 90 [30]
days for the public and members of the legislature to
comment on the proposed contract and the preliminary
findings and determination made under AS 43.82.400.
10:00:53 AM
SENATOR DYSON indicated he was offering these amendments as a
courtesy to Senator Therriault and would let him and his
consultants explain.
SENATOR GENE THERRIAULT, Alaska State Legislature, explained
that Amendment 13B is to expand the comment period. This was
addressed in the Senate Judiciary Standing Committee as part of
SB 316 during the regular session; due to the complexity of the
overall package, he'd proposed an amendment to provide
additional time to understand the contract and submit input to
the administration, which would benefit legislators, the general
public and other oil and gas companies in Alaska.
He recalled debate in the administration as to whether public
comment should be at least 30 days or up to 90 days; he also
recalled the governor saying it should be at least 45. Senator
Therriault reported, however, that during discussion of SB 316
he'd heard from smaller companies that have in-house counsel who
were scrambling to understand the full impact of the contract in
order to give meaningful input during the public comment period;
they wanted a minimum of 60 days, and had said 60 to 90 days
would provide time for meaningful comment. Furthermore, some
small companies such as Anadarko or Pioneer might not even have
in-house counsel, and their hired counsel would need time to get
up to speed before even making recommendations to them.
He noted he'd originally suggested 90 days. In the Senate
Judiciary Standing Committee, however, the administration
indicated up to 60 days was acceptable but 90 days was a bit
long; thus that committee changed it to 60. Although 90 days is
proposed in the amendment, Senator Therriault deferred to the
current committee to decide whether to change it to 60, which
would add two weeks to the 45 days stated by the administration.
This would provide an opportunity to comment, not only for
legislators, but also for petroleum companies in Alaska that are
concerned about open access and other provisions.
SENATOR BEN STEVENS brought attention to the following language
in withdrawn Amendment 11:
(3) if state participation is proposed,
submit to the governor all documents reasonably
related to the ownership, governance, management, and
control of the state's participation at the same time
the contract is submitted under (2) of this
subsection.
He pointed out parallel language in proposed Amendment 13A:
(3) submit to the governor all documents
related to the ownership, governance, management,
control, and operation of the project and
participating entities at the same time the contract
is submitted under (2) of this subsection.
He reiterated his concern voiced on a previous amendment: It is
unreasonable to complete this in the next 45 or 90 days.
Senator Ben Stevens also said if that portion of the project is
part of the requirement before the contract can be presented to
the legislature, they might as well delay determination until
there is a FERC Qualified Project Plan and a certificate of
public convenience is issued, since, as he interprets it, it
won't ever be satisfied.
10:08:49 AM
CHAIR SEEKINS returned attention to proposed Amendment 13B,
relating to the comment period.
SENATOR THERRIAULT, in response to discussion of the deadline
dates, reiterated the concern of smaller companies: they don't
know whether should be scrambling now, since day 45 might be the
deadline, and want 60 to 90 days for meaningful comment. He
also reiterated his earlier explanation.
SENATOR BEN STEVENS paraphrased part of AS 43.82.430(a), noting
the commissioner of revenue shall provide the findings to the
legislature within 30 days after the close of public comment.
10:13:37 AM
^Larry Ostrovsky, Department of Law
LARRY OSTROVSKY, Chief Assistant Attorney General-Statewide
Section Supervisor, Oil, Gas & Mining Section, Civil Division
(Anchorage), Department of Law, stated his belief that the
administration would agree to 60 days.
10:14:22 AM
SENATOR DYSON moved to adopt Amendment 1 to Amendment 13B, to
replace 30 days with 60 days. There being no objection, it was
so ordered.
CHAIR SEEKINS asked if there was any objection to Amendment 13B
as amended.
SENATOR BEN STEVENS objected.
A roll call vote of 8 yeas and 4 nays proved Amendment 13B as
amended passed, with Senators Bunde, Olson, Kookesh, Dyson,
Wilken, Elton, Hoffman and Wagoner voting yea, and Senators
Stedman, Ben Stevens, Green and Seekins voting nay.
10:15:50 AM
SENATOR BEN STEVENS moved to table SB 2004 until no sooner than
the week of July 10, 2006.
SENATOR BUNDE asked why that date was chosen.
SENATOR BEN STEVENS answered that it equals the time just
adopted, no sooner than 60 days from the public comment period.
CHAIR SEEKINS opined that the effect would be a 30-day comment
period if SB 2004 isn't adopted, since the commissioner would be
compelled, under current law, to bring the final version back to
the legislature anytime after 30 days from May 10. There would
be no extension of time. It would be at the discretion of the
governor, who has stated it would be 45 days or whatever it
takes. In effect, anytime after that 45-day commitment the
governor could bring the contract back to the legislature in its
final form.
An initial roll call vote was 7 yeas and 5 nays, with Senators
Bunde, Olson, Kookesh, Ben Stevens, Stedman, Hoffman and Green
voting yea, and Senators Dyson, Wilken, Elton, Wagoner and
Seekins voting nay. Senator Bunde changed his vote from yea to
nay. Therefore, the motion to table SB 2004 until no sooner
than the week of July 10, 2006, failed by a vote of 6-6.
The committee took an at-ease from 10:20:05 AM to 10:58:41 AM.
SENATOR HOFFMAN moved to rescind the committee's action in
adopting Amendment 10A to SB 2004 during the 7:05 a.m. meeting.
Containing the first section of Amendment 10, as revised during
that meeting to contain only lines 1-8, Amendment 10A read:
A M E N D M E N T 10A (Revised)
OFFERED IN THE SENATE BY WAGONER
TO: SB 2004
Page 6, line 23, following "project":
Insert "and each project entity to be created to
own and operate any part of the project"
Page 6, line 24, following "chapter.":
Insert "Each collateral agreement shall be a
condition subsequent to the proposed contract
developed under this chapter shall be subject to
review and authorization to execute by the legislature
and, on approval, may be entered into by the public
corporation as provided in (b) of this section."
SENATOR GREEN put a call on committee members.
CHAIR SEEKINS announced discussion would continue meanwhile.
SENATOR DYSON objected for discussion purposes, asking why
Senator Hoffman wanted to withdraw Amendment 10A.
SENATOR HOFFMAN explained that previous dialogue suggested there
isn't oversight over major corporations such as the Alaska
Permanent Fund Corporation. Having it in this particular Act
would cause further problems, and he voiced concern about what
the "majors" would think of it. He stated his belief that it is
bad policy.
^Kevin Jardell, Office of the Governor
KEVIN JARDELL, Legislative Liaison, Office of the Governor,
informed members that the administration strongly opposes the
amendment and thus supports its rescission. He said it is clear
from testimony in the Senate and House that members are looking
for answers about how the collateral agreements will be
structured and what they'll contain.
He told members that throughout the Stranded Gas Act, it clearly
is the administration's burden to get that information to
legislators and ensure their comfort with what has been put
together in the contract before the legislature votes on it.
Mr. Jardell stated the intention of carrying that burden
throughout the education process until hopefully there is a
ratification vote in the legislature.
He voiced concern, however, that Amendment 10A - which similarly
tries to get the legislature to understand the contract's
contents - has what he hopes is an unintended consequence:
killing any contract and not allowing a commercial project like
this to go forward. Mr. Jardell opined that every application
received - not just those from the producers - would require
significant collateral agreements in the future, and that this
amendment, forcing those to come back to the legislature, would
preclude the ability to proceed on any application.
11:03:10 AM
SENATOR DYSON recalled that consultants had previously posited
that the state is in a weak position in relation to its other
partners in this venture. He asked whether the administration
believes its position is strong enough to protect the interests
of the people of Alaska.
MR. JARDELL related the belief that the contract necessary
protections while achieving a extremely beneficial outcome for
the State of Alaska. He added, "We think we fully comply with
the purpose and the intent of the Stranded Gas Act, which was to
go out and negotiate a deal to get the gas to market."
Expressing appreciation for members' comments and work by
legislative consultants, he explained that the administration
sends comments to its team to analyze; it's part of the process
outlined in the Stranded Gas Act. For those with merit, Mr.
Jardell stated the intent to see if there is a need to
renegotiate those pieces back into the final contract before
bringing it to the legislature.
He said those comments and input are vital to making the
Stranded Gas Act work and ensuring the contract is one the
legislature can support. However, he highlighted the difference
between setting it out in law - where there is no flexibility to
negotiate any portion - and providing input, with the
expectation that the administration will try to negotiate
certain changes. If the language is too restrictive,
Mr. Jardell cautioned, it hinders the ability to comply with the
Stranded Gas Act and negotiate the final deal.
11:06:02 AM
MR. JARDELL, in response to Senator Bunde, stated the
expectation of providing members of the legislature with an LLC
agreement and other pattern agreements and frameworks to look
at. He added, "We intend to make sure you have enough
information to feel comfortable that the contract that we have
agreed to is in the best interest of the State of Alaska, and
allow it to be ratified."
SENATOR BUNDE asked whether there is an awareness that the
contract likely won't be approved by the legislature if good
information isn't provided.
MR. JARDELL replied yes, indicating the administration is aware
of the burden it has and the responsibility to ensure the
decision by the legislature is an educated and informed one.
11:08:41 AM
SENATOR OLSON asked Mr. Jardell to specify the unintended
consequences of Amendment 10A.
MR. JARDELL responded that he believes legislators are trying,
with Amendment 10A, to gather information and comfort themselves
that they'll have that information before voting on the
contract. However, he opined that the consequence - which he
hopes is unintended - would be to kill the contract or other
contracts because of the uncertainty, not knowing if there is an
ability to do collateral agreements and get them signed off by
the partners in the project in a timely fashion, years from now,
without waiting for a session and going before the legislature
to sign the collateral agreements.
He further responded that not having the legislature in session
to sign an agreement and thus delaying a commercial project is
one problematic possibility; as far as not allowing the partners
to go forward in a timely manner, however, there are many
possibilities. In response to Senator Wagoner, he indicated he
was expressing the administration's views, formed from looking
at the issues, rather than relating the producers' views.
SENATOR ELTON opined what was intended with the amendment wasn't
that every future contract done by PipeCo or another entity
would require approval, but that the legislature would approve
the charter or recipe under which the entity operates; he
expressed comfort with that.
CHAIR SEEKINS observed it says each collateral agreement would
be a condition subsequent to the fiscal contract. He remarked,
"Tied back to the fiscal contract is pretty heavy."
MR. JARDELL responded that the administration believes, through
the Stranded Gas Act process in the coming weeks and the
information process, that the legislature will be fully informed
of the intent of the administration and the producers with
regard to what they'll be signing, and the patterns and forms of
that. He added, "If, in the event we don't provide that
information, then we could certainly have opportunities for the
legislature to weigh in on that and let the administration know
that we need to provide more information or have other tools
available to you, to ensure that we do."
11:13:46 AM
SENATOR HOFFMAN reminded members that the motion before them was
to rescind the committee's action, during the 7:05 a.m. meeting,
in adopting Amendment 10A.
CHAIR SEEKINS announced all members were present.
SENATOR GREEN pointed out awkward wording in Amendment 10A:
Insert "Each collateral agreement shall be a
condition subsequent to the proposed contract
developed under this chapter shall be subject to
CHAIR SEEKINS suggested "and" is needed there.
11:14:34 AM
CHAIR SEEKINS asked whether there was any objection to the
motion to rescind the committee's action in adopting
Amendment 10A.
SENATOR ELTON and SENATOR WAGONER objected.
A roll call vote of 8 yeas and 4 nays proved the motion passed,
with Senators Stedman, Bunde, Kookesh, Ben Stevens, Olson,
Hoffman, Green and Seekins voting yea, and Senators Dyson,
Wilken, Elton and Wagoner voting nay.
CHAIR SEEKINS indicated the original motion to adopt Amendment
10A was before the committee again.
SENATOR GREEN concurred with Chair Seekins' assessment that
"and" was missing between "chapter" and "shall".
CHAIR SEEKINS related his experience that good agreements make
good partners. He highlighted the difficulty in feeling
comfortable without seeing the template that goes along with the
LLC and that might evolve into further collateral agreements.
He also emphasized this is a long-term project that will benefit
his grandchildren and their generation. He asked why it had
taken longer than anticipated to see the template.
MR. JARDELL replied that he couldn't define the difficulties,
other than trying to get it right. Noting he hadn't been deeply
involved with the negotiations of the LLC, he indicated someone
else from the administration might be able to speak to that. In
further response, Mr. Jardell said he believes it is fair to
characterize the situation as each party negotiating with the
others.
CHAIR SEEKINS invited questions of the experts relating to
Amendment 10A.
11:20:08 AM
SENATOR THERRIAULT called attention to SB 2004, page 7,
subsection (e), beginning at line 14, which defines what
"collateral agreement" includes. He said he wasn't sure from
the discussion whether the legislature would have to approve all
these decisions made by these corporations. The definitions
narrow it, however, so it is just when the state sets up the
business or gets into the business operation. All decisions of
the business operations wouldn't be overseen.
CHAIR SEEKINS asked whether this relates to a specific timeframe
or is a continuum in time.
SENATOR THERRIAULT opined it's a continuum.
CHAIR SEEKINS concurred with that understanding. He recalled
testimony that in Canada it would be a joint venture, rather
than an LLC, and in other states it might be another type of
corporation. He asked Mr. Donohue whether that is correct.
^Joseph K. Donohue, Preston Gates & Ellis
JOSEPH K. DONOHUE, Preston Gates & Ellis, Counsel to the
Governor, emphasized this collateral-agreement power is a
transitional power that the Department of Revenue (DOR)
commissioner has for 180 days after the effective date of the
authorization Act. That authority relates to agreements entered
into by the state with, potentially, the affiliates and parent
companies of the producers; it would be an administrative
contract that lines up those parties which will actually carry
out the contract, with the terms and conditions of the fiscal
contract that has been approved.
He said once the "AK Pipe" legislation is enacted, the two
commissioners would be able to act on behalf of the public
corporation for up to 120 days. Thereafter, the public
corporation would take full responsibility for negotiating and
executing any remaining LLC agreements. Mr. Donohue said the
administration will make every effort to have a template; in
fact, he understands it will be more than a template - it will
be the mainline LLC agreement, presented when the legislature
has the opportunity to review the fiscal contract.
CHAIR SEEKINS asked: After the transition period, would the
restriction under Amendment 10A no longer be in effect for any
future LLC that the board of directors would enter into?
MR. DONOHUE replied that Amendment 10A reads "as a condition
subsequent" and would continue beyond the transitional power.
SENATOR ELTON surmised it's a limitation of the commissioner's
ability to negotiate a collateral agreement, and that power
lapses 180 days after the effective date of the law that
authorizes the contract. He asked whether it's correct that the
limitation in the amendment would probably only be applied to
the mainline-entity LLC.
MR. JARDELL replied no. He opined the "condition subsequent"
would require a continuing obligation to bring those back before
the legislature. He said the administration believes the only
commercial, viable option is to give that public corporation the
ability to enter into those agreements without having to come
back each time to the legislature for approval.
11:26:26 AM
SENATOR GREEN objected to Amendment 10A.
A roll call vote of 4 yeas and 8 nays proved Amendment 10A
failed, with Senators Dyson, Wilken, Elton and Wagoner voting
yea, and Senators Ben Stevens, Kookesh, Stedman, Bunde, Hoffman,
Olson, Green and Seekins voting nay.
11:27:39 AM
SENATOR HOFFMAN asked Mr. Jardell to address the earlier
adoption of Amendment 13B, establishing a period of at least 60
days for the public and members of the legislature to comment.
MR. JARDELL answered that the governor, on a number of
occasions, has said the process should be as long as necessary
to get adequate information to the public and, more importantly,
to listen to the public and the legislature. Today Governor
Murkowski would announce the third phase of the public process,
which includes going back to communities and having panel-type
discussions and more interaction, providing as many means of
giving information as possible. Mr. Jardell stated support for
leaving it as is, since it provides the most flexibility under
the Stranded Gas Act to ensure the process can be completed when
there has been adequate information back and forth.
11:31:03 AM
SENATOR HOFFMAN moved to rescind the committee's action in
adopting Amendment 13B.
SENATOR BUNDE objected.
SENATOR HOFFMAN explained that the language says "at least" and
thus it could go 60 or 100 days.
CHAIR SEEKINS alluded to Mr. Ostrovsky's opinion, stated that
day prior to when Amendment 13B was adopted, that the
administration wouldn't object. He asked Mr. Jardell, "Are you
objecting?"
SENATOR HOFFMAN said if that was the testimony, he would
withdraw his motion.
11:32:18 AM
MR. JARDELL related the belief that the original Stranded Gas
Act provides the greatest flexibility, and with the governor's
commitment to get the information out to the public, sticking
with 30 days is the way to go. In response to Chair Seekins and
Senator Elton, Mr. Jardell reiterated his earlier remarks,
including that the governor has committed to taking as much time
as necessary; he clarified it wasn't he who'd testified earlier
and said the position hadn't changed.
SENATOR OLSON also recalled the opinion stated earlier by
Mr. Ostrovsky.
SENATOR WILKEN spoke in support of 60 days and said it is a moot
point, given what Mr. Jardell said about taking the process to
the communities. He added that supporting the 60 days would
gives his constituents an indication of the willingness to take
whatever time is needed.
11:35:50 AM
SENATOR HOFFMAN withdrew his motion to rescind the committee's
action in adopting Amendment 13B.
The committee took an at-ease from 11:36:26 AM to 1:32:47 PM.
1:33:29 PM
^James Barnes, Barnes & Cascio
MR. BARNES explained a chart, "Annex 2: Possible Gas Pipeline
Structure," attached to a memo he'd submitted a week ago. He
said it's a possible structure of what he thinks is contemplated
by the fiscal contract; it shows a general corporate structure,
with parent entities and subsidiary organizations including
marketing affiliates of the prospective parties in the fiscal
contract.
He pointed out that there'd be a pipeline-owning affiliate for
each party, for example. The entities would be connected by the
flowing gas, and there would need to be coordination among them
and also some financing arrangements, perhaps including use of
the federal loan guarantee. Mr. Barnes noted SB 2003 sets up
governance arrangements for "AK PipeCo."
He explained that "AK GasCo," the gas-owning entity that may be
an arm of the state or separate state corporation, is the "state
capacity holder" under the fiscal contract; it would have its
own governance arrangements and would have the ship-or-pay
commitment. Whether it would be guaranteed by the state or some
other financing arrangement remains to be seen. Noting the
fiscal contract seems to contemplate concerted action by the
parent entities in arranging regulatory approval - in Canada and
Alaska, and perhaps in the Lower 48 - Mr. Barnes said it seems
there should be "undertaking coordination" and perhaps a
guarantee arrangement.
1:39:39 PM
SENATOR WILKEN asked about the significance of the vertical
solid and dotted lines on the chart.
MR. BARNES answered that the colored boxes are already
established entities, and the solid lines indicate the
relationship is known. For example, BP already has a gas-
marketing affiliate, to his belief. For the state's entities,
however, it isn't known; there is pending legislation on
AK PipeCo, but apparently not on AK GasCo.
The committee took an at-ease from 1:41:24 PM to 1:41:43 PM.
SENATOR BUNDE moved to adopt conceptual Amendment 15 to SB 2004,
to delete Section 11. He explained that although there'd been
substantial input from various entities about Section 11,
relating to collateral agreements, it isn't ripe for action yet
and there isn't enough information.
SENATOR BEN STEVENS proposed also deleting page 2, lines 27-29,
relating to collateral agreements.
1:43:30 PM
SENATOR BUNDE accepted that as a friendly amendment.
CHAIR SEEKINS asked whether there was any objection to adopting
Amendment 15 as amended. There being no objection, it was so
ordered.
1:44:06 PM
SENATOR WILKEN moved to adopt Amendment 14, labeled 24-
GS2046\A.18, Bailey, 6/5/06, which read:
A M E N D M E N T 14
OFFERED IN THE SENATE BY SENATOR WILKEN
TO: SB 2004
Page 1, line 5, following "contract;":
Insert "relating to determination of full and
true value of property and required contributions for
education in municipalities affected by stranded gas
fiscal contracts;"
Page 10, following line 1:
Insert a new section to read:
"* Sec. 16. AS 43.82 is amended by adding a new
section to article 7 to read:
Sec. 43.82.650. Calculations of education
funding. To determine the amount of required
local contribution under AS 14.17.410(b)(2) and
(c) for a school district in a revenue-affected
municipality, and to perform its duties under
AS 14.17.510, the Department of Commerce,
Community, and Economic Development shall adopt
regulations. The regulations must establish
assessment standards for any property that would
have been assessed under AS 43.56 but is instead
generating a payment to a revenue-affected
municipality in lieu of a municipal property tax
as provided in a contract developed under this
chapter. The regulations must ensure that the
property is included in the full and true value
of the city or borough school district for the
purpose of determining required local
contributions for education funding under
AS 14.17.410(b)(2) and (c)."
Renumber the following bill sections accordingly.
Page 10, line 23:
Delete "Sections 1 - 12, 15, 16, and 18"
Insert "Sections 1 -12, 15 - 17, and 19"
Page 10, line 25:
Delete "Section 17"
Insert "Section 18"
SENATOR WILKEN objected for discussion purposes. He provided a
spreadsheet, "Local School Funding Worksheet: Comparison with
Oil & Gas Properties Included and Excluded from the Full & True
Value," prepared by Steve Van Sant, the state assessor.
Senator Wilken explained that the Foundation Formula has a
provision that depends on basic need or 45 percent of prior
basic need; because of going to a throughput method of
valuation, the "full and true value" component would be pulled
with respect to education funding.
He noted this affects any borough using AS 43.56 to fund its
schools, but particularly Valdez and the North Slope Borough.
Fairbanks would lose about 2 percent of its funding and Kenai 6
percent, whereas the North Slope Borough would lose 80 percent
and Valdez 30 percent. Amendment 14 is to fix this problem.
Senator Wilken deferred to Mr. Jeans and Mr. Van Sant.
1:46:53 PM
^Eddy Jeans, Department of Education and Early Development
EDDY JEANS, Director, School Finance, Department of Education
and Early Development (DEED), explained that DEED receives an
annual report from the Department of Commerce, Community &
Economic Development (DCCED), from the state assessor, showing
the full-value determination for each municipality; his
department uses that to calculate the required local
contribution. Amendment 14 requires the state assessor to
continue, for the purposes of DEED, to include the value of the
oil and gas under AS 43.56 in making that full-value
determination. It keeps the program as it currently is for
calculating required local effort for public schools.
1:48:10 PM
SENATOR STEDMAN asked whether, with Amendment 14, it would be
treated as today, with one-half of the assessed value over 1999
included.
MR. JEANS replied it would continue as is. This tells the state
assessor how to calculate the full-value determination for a
given year. It preserves both parts of the Foundation Formula
for the required local contribution in terms of 1) how the full
value is determined and 2) how it is applied in the formula.
The "50 percent" provision referred to by Senator Stedman, in
another section, isn't affected.
SENATOR STEDMAN asked whether today the Trans-Alaska Pipeline
System (TAPS) is treated differently from other real property,
with an assessed value at 100 percent, not the 1999 level plus
one-half the growth after 1999.
MR. JEANS indicated he didn't know.
1:50:10 PM
SENATOR WILKEN informed members that the Municipal Advisory
Group (MAG) had provided Resolution 2006-03, Issues Related to
Effects of the Stranded Gas Act Contract on Education Funding,
which led to this amendment.
1:51:03 PM
^Steve Van Sant, State Assessor
STEVE VAN SANT, State Assessor, Division of Community Advocacy,
Department of Commerce, Community & Economic Development,
answered Senator Stedman's question, saying TAPS is treated like
other real property. This amendment assures that the full value
continues to contain the value for oil and gas properties; the
department will come up with regulations. This will preclude
any revenue loss for Valdez or the North Slope Borough. He
noted the second page of his spreadsheet shows the North Slope
Borough would lose about $15.7 million and Valdez almost
$1 million in additional school funding if the value of oil and
gas weren't included in the full and true value.
SENATOR OLSON voiced appreciation, saying his constituents would
be incensed if this weren't equilibrated in some way.
JIM BALDWIN, Counsel to the Office of the Attorney General,
informed members that he agreed with everything Mr. Jeans had
said with respect to the effect of Amendment 14.
1:53:31 PM
CHAIR SEEKINS asked whether there was any objection to adopting
Amendment 14. There being no objection, it was so ordered.
The committee took an at-ease from 1:53:44 PM to 1:56:44 PM.
SENATOR THERRIAULT returned attention to Amendment 13A. He
informed members that he'd asked the drafter to work on language
following this morning's discussion, but hadn't received
anything yet. Noting concern had been expressed about where
that requirement was placed in the process, he reported the
drafter had suggested it would be "replaced in the process that
we're already well into." Thus he'd asked the drafter to recast
the language. He referred to page 1, lines 11-13, of the
amendment, which read:
(3) submit to the governor all documents
related to the ownership, governance, management,
control, and operation of the project and
participating entities at the same time the contract
is submitted under (2) of this subsection.
He indicated that the language he'd asked the drafter to shrink
it to would read: "all documents related to the ownership,
governance, management, control, and coordination of the project
and participating entities". This would be inserted where the
underlined language is on line 20 of the amendment, which read:
"the documents required under AS 43.82.400(a)(3)". Thus Senator
Therriault said that information would be required at a point in
the process not yet reached.
1:58:06 PM
CHAIR SEEKINS noted Amendment 13A relates to Section 11,
collateral agreements, deleted by Amendment 15. He suggested
Amendment 13A therefore should lie on the table.
SENATOR THERRIAULT concurred, saying it seems if there is going
to be a collaborative process and there is some discussion with
the administration about the need for the legislature to have
details about those entities, it could wait until then.
CHAIR SEEKINS said that is the intent. He announced no action
would be taken on Amendment 13A.
The committee took an at-ease from 1:58:57 PM to 2:00:04 PM.
SENATOR WAGONER informed members that during the coming
roundtable discussions he'd like to address page 2, lines 21-24,
of SB 2004, regarding oil and gas lease agreements and unit
agreements. In particular, he'd like consultants on both sides
to discuss leases that are rolled into the contract, including
the effect on current leases and what the state stands to gain
or lose. He opined that this amendment would put quite a bit
more authority into the commissioner's toolbox, and he suggested
it should be looked at thoroughly before doing so.
2:03:06 PM
SENATOR WILKEN moved to adopt Amendment 16, labeled 24-
GS2046\A.17, Wayne, 6/5/06, which read:
A M E N D M E N T 16
OFFERED IN THE SENATE
TO: SB 2004
Page 3, line 26:
Delete "a new subsection"
Insert "new subsections"
Page 4, following line 2:
Insert a new subsection to read:
"(c) Nothing in a contract under this
chapter diminishes the legal authority of the
Regulatory Commission of Alaska or indemnifies
any person or entity from future decisions of the
Regulatory Commission of Alaska or a successor to
the Regulatory Commission of Alaska."
SENATOR THERRIAULT explained that Amendment 16 relates to an
issue of concern to him since discussions at Centennial Hall.
He recalled legislation a couple of years ago that proposed to
limit the powers of the Regulatory Commission of Alaska (RCA) in
regulating the oil pipeline. Now the proposed gas contract
suggests FERC will be relied upon to regulate this "monopoly
transportation system." However, FERC is a federal creation and
may not exist in the future.
He related his understanding of the contract language: If FERC
doesn't exist, the only regulation would be through business
agreements; RCA couldn't step in. Senator Therriault questioned
prohibiting RCA, the state's own entity, from acting as a buffer
between this monopoly and the consumers in this situation. Thus
the amendment would direct the administration that the contract
isn't to increase RCA's powers, but wouldn't diminish them
either; it would apply to RCA or its successor agency.
He also said the contract language suggests that even if RCA
acted in its regulatory role and caused an impact to the
companies, the state would somehow indemnify them. Senator
Therriault told members he couldn't think of when the state
would do that, except to mitigate the effect of a tariff
believed to be too high. If a tariff is too high, it would be
subtracted from the state's wellhead value, he suggested, and
thus the RCA would be doing exactly what was desired -
maintaining a lower tariff, to the benefit of consumers and the
State of Alaska.
2:07:01 PM
CHAIR SEEKINS surmised the intent is not to set up dueling
regulatory agencies, but to look for a successor if FERC "goes
away."
SENATOR THERRIAULT clarified it's also if FERC determines a
portion of the operation doesn't fall within its jurisdiction.
2:07:36 PM
CHAIR SEEKINS asked Mr. Shepler what chance there is that FERC
will dissolve without a successor.
^Donald Shepler, Greenberg and Traurig
MR. SHEPLER noted he hadn't thought about it much, but pointed
out that FERC dates from 1938 in various forms. Although
nothing prohibits Congress from amending the Natural Gas Act -
the source of FERC's power over this pipeline system - he opined
there isn't a very high probability. More problematic, however,
is that some pieces of the contemplated system might not be
found to be subject to FERC's jurisdiction.
He said everyone agrees the pipeline itself would be subject to
FERC regulation. The treatment plant, in his opinion, probably
would be. For feeder lines or gas-transmission lines and the
natural gas liquids (NGL) plant, though, Mr. Shepler said it is
unclear, the further upstream one goes, whether FERC will assert
jurisdiction or be affirmed in that jurisdiction.
CHAIR SEEKINS asked whether RCA would have regulatory authority
outside Alaska.
MR. SHEPLER said he wouldn't think so. He noted RCA has its own
statutory regulatory authority.
2:10:44 PM
CHAIR SEEKINS surmised spur lines, for example, wouldn't be
regulated by FERC, and thus would be regulated by RCA.
MR. SHEPLER said that could be. In further response, he
specified this applies where FERC either doesn't assert
authority or is found to lack authority. For a line taking gas
from the main line to Fairbanks or Anchorage, for instance, RCA
would have jurisdiction under current federal statutes.
CHAIR SEEKINS cautioned against possibly setting up dueling
authorities under the proposed language.
2:12:30 PM
SENATOR BUNDE suggested there will always be gray areas between
FERC and RCA jurisdiction. This precludes the opportunity for
someone to escape regulation by either entity.
2:13:12 PM
CHAIR SEEKINS confirmed Mr. Loeffler was on teleconference now
and read from Amendment 16.
^Bob Loeffler, Morrison & Foerster
BOB LOEFFLER, Morrison & Foerster, Counsel to the Governor,
began by saying the intent of the contract provision relating to
RCA was to clarify where federal jurisdiction lies, as part of
the overall effort toward fiscal certainty; in his mind, there
was no intent to change the jurisdiction. He opined that it
corresponds to federal law, which on this project would include
the main line; the gas treatment plant (GTP); and, to his
belief, the upstream feeder lines, which wouldn't be making
deliveries in Alaska, but would be feeding into an interstate
pipeline.
He agreed it is a remote possibility that FERC could go away,
although it has been in business, in some form, since 1938.
Mr. Loeffler highlighted a constitutional question as to whether
the federal government has authority to regulate an area. If it
changes the form of regulation, does that open the area for
regulation by the state?
He cited the Narragansett case, relating to electricity, as
suggesting states cannot step in and regulate interstate
commerce, even if the federal government hasn't acted to
regulate that area. Therefore, in the hypothetical and remote
case that Congress decides FERC should have a different form of
regulation or not regulate part of the interstate gas business,
Mr. Loeffler said he couldn't give the opinion that the state
could step in.
He turned to Amendment 16, noting he hadn't seen it previously.
After reading portions out loud, he said, "Yes, the contract
does contain a possible indemnification, with a lot of hurdles
and limitations before you get to it. So, from the point of
view of the administration, we couldn't agree to that,
consistent with the tentative contract that we ... will put
before you."
2:17:48 PM
MR. LOEFFLER emphasized there are limitations on loss that apply
to the indemnification clause as well as any other loss under
the contract; they remove the largest potential exposure if
there ever is a loss situation. "So we don't agree, as far as I
know, with the indemnity language in the amendment, because it's
inconsistent with what we've negotiated," he told members.
Mr. Loeffler also questioned what the first half of the sentence
does beyond stating a truism: if RCA doesn't have jurisdiction,
it isn't changed, and if it does, it isn't changed.
2:18:52 PM
SENATOR STEDMAN suggested Amendment 16, targeted to go under
AS 43.82.200, contract development, doesn't seem to fit well.
He asked why it isn't under AS 43.82.610, regulation.
SENATOR THERRIAULT explained that he'd written this language
last night and had asked the drafter where it fits. Stating the
intention that RCA's ability to utilize its statutory power
wouldn't be precluded in the contract, Senator Therriault
requested an example where RCA exercises its power such that it
needs to be indemnified under the contract. With respect to
RCA's regulation of this transportation system where the feeder
lines come into it, he surmised it would be to ensure the tariff
isn't too high.
He also wondered whether that is what the current contractual
language tries to indemnify in case RCA makes that determination
in the future. If they do, Senator Therriault said, his opinion
is that it would be to the benefit of consumers and the State of
Alaska, because the tariff would be subtracted from the state's
wellhead value.
2:20:33 PM
MR. LOEFFLER replied that if RCA attempted to set the tariff on
the feeder lines and they were subject to federal regulation,
that exercise would be preemptive. No loss would arise.
Assuming federal regulation, RCA could "just not set different
tariffs." He offered to reiterate his previous explanation of
the oil line and gas line with respect to this if necessary. He
added that if somehow the federal government didn't regulate the
tariff of the feeder line into the interstate system - which is
contrary to his understanding - and RCA had jurisdiction and
said the profit element was too high on the feeder line, then
the contract would kick in and there couldn't be, under his view
of the contract, an indemnity for those lost profits.
He read from Article 37.2 of the contract, which says it is
negotiated in consideration of the parties' consent to limit
recovery of certain loss; no party is liable to any other party
for loss of federal rights relating to this contract or any
breach of it, or any consequential or incidental damages
including lost profits. Mr. Loeffler told members that if RCA
says the tariffs are too high because the profit element is too
high, he reads the contract provisions, taken together, as
follows: In a dispute, after other procedural hurdles are
cleared, one cannot be indemnified by the state for lost
profits.
He highlighted the only situation he could think of where there
might be an indemnity: If RCA attempted to impose contract
carriage on a feeder line - attempting to displace existing
shippers with new shippers - then the displaced shipper might
argue it suffered a loss. But whether it really had suffered a
loss would depend on facts downstream, including whether it was
advantaged by not having to ship at a particular time.
Furthermore, Mr. Loeffler said, it would assume that an attempt
to impose contract carriage on a flow of gas through an
interstate pipeline, which depends on that flow, didn't also
interfere with the operation of that pipeline.
2:24:49 PM
^Donald Shepler and Bob Loeffler
MR. SHEPLER pointed out that in the 2004 federal legislation,
Congress established specific rules over federal regulation of
an Alaskan pipeline project; in the future, Congress could again
make rules having nothing to do with FERC's regulation for the
last 70 years in the Lower 48, and could surgically remove
federal regulation of the Alaskan project or some portions of
it. He noted this "what goes around, comes around" scenario
doesn't depend on massive deregulation or abolition of the FERC.
MR. LOEFFLER added that under the commerce clause the federal
government, through Congress, chooses how to regulate entities.
It is the province of the federal government to decide how to
regulate; the fact that it can surgically change an element of
regulation doesn't remove that from federal jurisdiction, and
the state cannot just step in to fill a gap or institute its own
regulation.
2:27:38 PM
SENATOR THERRIAULT remarked he is always a bit leery of taking
comfort in protections afforded by another government. The
state controls RCA, which isn't subject to changes by Congress.
Noting the amendment refers to indemnification, he pointed out
that Article 8.3 of the contract talks about reimbursement for a
loss to a participant, which could include costs to cover
transportation or other appropriate relief.
He related his concerns: If a section of pipeline doesn't fall
under FERC jurisdiction but falls under the regular RCA powers,
wouldn't the desire be to have RCA continue to exercise those
powers to protect the consumers and the state? And if
exercising those powers caused a loss, should the state have to
reimburse for that? Senator Therriault noted if a future
legislature disagreed, RCA's powers could be modified then. He
specified that the intention isn't to increase RCA's powers or
cause any overlap, but is to preserve those powers as they are,
under law established by the legislature.
2:29:58 PM
CHAIR SEEKINS read from Amendment 16. He asked whether it would
be better to clarify that it only refers to decisions regarding
areas under RCA authority, which might read better for the
layman. He suggested the following conceptual wording:
Nothing in a contract under this chapter diminishes
the legal authority of the RCA regarding areas under
RCA authority or indemnifies any person or entity from
future decisions of the RCA or a successor to the RCA
regarding areas under RCA authority - or decisions
under RCA authority.
SENATOR THERRIAULT agreed that still encapsulates his intent.
2:31:45 PM
MR. LOEFFLER responded that the first half sort of restates
existing law and thus he would reference AS 42.06.245. He read
from the following portion of that statute:
The requirements of this chapter pertaining to permits
and certificates of public convenience and necessity
do not apply to the construction of a pipeline
facility exclusively subject to federal jurisdiction
or to the interstate portion of the business of a
pipeline or pipeline carrier exclusively subject to
federal jurisdiction.
He said the first part, though he wouldn't agree with it, is a
truism. The second, a legitimate public policy issue,
recognizes that limits are being placed on the reimbursement.
Mr. Loeffler added, "There are a set of procedural hurdles, even
before you get to the possibility of reimbursement for a loss,
if you can construct a loss other than lost profits, I feel
constrained, as a representative of the administration, not to
agree with, because it's contrary to the negotiations that
occurred on the draft contract."
2:33:15 PM
SENATOR STEDMAN again asked why the language proposed in
Amendment 16 goes under AS 43.82.200, contract development,
instead of AS 43.82.610, regulation.
SENATOR THERRIAULT explained that he'd informed the drafter that
this is to instruct the administration to not impact RCA's
powers as the administration constructs the contract. The
drafter then had suggested it belonged in that section.
2:34:26 PM
SENATOR STEDMAN asked whether Senator Therriault could identify
any diminishment of RCA's authority in the contract.
SENATOR THERRIAULT suggested that is why there was testimony
that it sort of restates current statute. He said the operative
part is where it gets to indemnification or reimbursement
triggered if RCA actually takes on its statutory role. He added
that he wasn't sure why, if the state regulatory agency is doing
as the statutes instruct, there should be indemnification for a
resulting loss if, in fact, it is ensuring that tariffs aren't
too high or that there is access to lines.
2:35:21 PM
SENATOR GREEN asked whether it was Mr. Loeffler who'd presented
that information at Centennial Hall.
MR. LOEFFLER affirmed that.
SENATOR GREEN asked whether he'd used the term "overstepping"
with regard to RCA's potential actions.
MR. LOEFFLER said he could have.
SENATOR GREEN requested a hypothetical scenario in which a
dispute could arise and lead to litigation.
MR. LOEFFLER gave an example from the existing RCA statute. He
noted AS 42.06.240 requires a North Slope natural gas pipeline
to apply for a certificate, but also says the requirement for a
certificate doesn't operate to impose state regulation that has
been preempted under federal law. He opined that if RCA asked
the applicant for the main line to apply for a certificate of
public convenience and necessity under state law, and as part of
that application to address how much will be intrastate service,
it would be inconsistent with the requirements of the federal
statute, which requires a certificate of public convenience and
necessity.
He suggested RCA could step into the jurisdiction of FERC, which
looks at gas markets and potential shippers and is required to
look at how much transportation capacity will be set aside for
intrastate uses. There could be dueling agencies. Mr. Loeffler
said the idea of Article 8.3 is that before anyone starts
claiming a dispute or loss, there is a cooling-off period during
which the state and federal governments can talk and clarify
jurisdictional issues before the point of dispute resolution and
a claim for loss.
2:39:22 PM
SENATOR GREEN asked whether the contract proposes that the state
assist in indemnifying the other partners for RCA's actions.
MR. LOEFFLER noted there are limitations on the loss, but
replied that if RCA caused a loss to the producers and the loss
was adjudicated and proved, this amendment would prevent the
state from reimbursing for that loss.
2:40:23 PM
MR. SHEPLER informed members he was looking at Article 8.3 of
the contract in light of Mr. Loeffler's testimony. He noted the
contract itself is triggered if FERC doesn't assert
jurisdiction. The second sentence on page 87 of the contract
says if FERC doesn't assert jurisdiction, no party may seek or
support jurisdiction in the RCA and so forth. Mr. Shepler said
he was having trouble getting back to Mr. Loeffler's point that
somehow there would be a "constitutional crisis" between state
and federal regulation.
He opined Amendment 16 just says nothing in the contract
diminishes whatever authority RCA might have in that
circumstance, as set forth in its statutory mandate.
Contemplated in the contract is that FERC would not assert
jurisdiction as the triggering event, Mr. Shepler said, adding
that he believes, subject to confirmation by Senator Therriault,
that the intent is to clarify there is no change being made by
this contract to RCA's existing authority.
2:42:17 PM
SENATOR GREEN suggested the real thrust is the language "or
indemnifies any person or entity from future decisions of the
Regulatory Commission of Alaska", which relates to the contract
provision.
SENATOR THERRIAULT replied it's in regard to the loss and said
RCA is precluded if there is federal jurisdiction. If, however,
FERC says it won't regulate, he wants to preserve RCA's right to
follow its statutory direction from the legislature and step in
to see whether it has jurisdiction over that area, since RCA has
been set up to protect consumers and the state.
MR. LOEFFLER clarified that RCA, an independent regulatory
agency, is excluded from the definition of the state. Nothing
in the contract restricts RCA from asserting lawful jurisdiction
in that circumstance. In further response to Senator
Therriault, he affirmed that the state itself, by this language,
couldn't ask for RCA jurisdiction, but he pointed out there
would be many interested parties.
SENATOR THERRIAULT suggested there could be a strange situation
in which the state has written its laws to direct RCA and
believes those laws should be exercised, but would be precluded
from encouraging RCA to use those laws.
CHAIR SEEKINS related his understanding of AS 42.06.245, that
nothing limits the power of the commission in that chapter,
except as preempted by federal law. He asked if that covers
these circumstances, and surmised it cannot be contracted away.
2:46:06 PM
SENATOR THERRIAULT noted there could be a situation in which RCA
wants to assert jurisdiction. Under the contract, the state -
which wrote the law - wouldn't be able to support that activity,
even if it was in the state's best interest.
CHAIR SEEKINS suggested perhaps saying that "nothing in the
contract under this chapter supersedes the requirements of
Section 42.06.245", which basically says that nothing limits the
powers of the commissioner except as preempted by federal law.
SENATOR THERRIAULT replied that he thought it would have the
intended effect. However, he didn't want to rely on having a
company such as Pioneer protect the state in the future. He
agreed the reference to .245, coupled with the indemnification,
probably would encapsulate his intention.
2:47:53 PM
SENATOR GREEN objected to Amendment 16.
CHAIR SEEKINS, in response to Senator Elton, clarified that
although he'd talked about a conceptual amendment to Amendment
16, he hadn't offered it. He said the first part is a truism
that already exists. He asked whether the second part,
regarding indemnification, is a truism as well, or introduces
new law that says it's okay to preempt federal law as long as it
is done a certain way.
2:49:22 PM
SENATOR GREEN referred to discussion of Article 8.3, which says
the state will indemnify the partners for any actions by RCA
that cause a loss or diminishment. She said that consideration
has to be given, but questioned whether it is right. She noted
the amendment allegedly protects RCA, but also says the state
won't indemnify any other person and so forth. She said she
didn't know the reasoning behind the indemnification.
MR. LOEFFLER said he'd try to explain. The language is that if
RCA asserts jurisdiction and takes regulatory actions that are
inconsistent with the principles of FERC policy or commercial
agreements that result in a loss, the state shall reimburse the
participant for the loss. He emphasized it isn't automatic.
He gave the following as the rationale: The producers want
clarity as to the regulatory arrangement; they don't want, at a
later date, to be faced with a change in those arrangements that
causes an unanticipated loss. In the allocation of risk, the
state should be responsible - within the limitations, hurdles
and procedures - for any ultimate loss to the companies from
RCA's actions inconsistent with those standards, since RCA is a
state creation. Some companies had pressed hard for that,
Mr. Loeffler reported, and the negotiation session at which this
was agreed to involved some other economic trades; those who
were there felt this was a fair trade.
2:52:59 PM
SENATOR GREEN proposed adding "unless RCA's actions were
inconsistent with FERC principles" to the amendment. She
suggested this is key language in the contract provision.
CHAIR SEEKINS suggested "federal regulations". He requested
Mr. Shepler's opinion if the end of the paragraph were to say
"inconsistent with federal law or FERC regulation".
MR. SHEPLER proposed "if such actions are inconsistent with
federal law or regulations".
SENATOR GREEN asked whether he'd said "FERC" or "federal".
MR. SHEPLER indicated either could be used.
CHAIR SEEKINS inquired whether that would fit within Senator
Therriault's intent.
SENATOR THERRIAULT noted there won't be jurisdiction if it's
preempted by federal law. However, he was thinking that if RCA
is exercising its power to protect consumers and the state, a
power that the legislature has granted, why would there be
indemnification if it ran contrary to a FERC principle and a
loss occurred. He surmised "smaller players" in Alaska might
see some protection from RCA if there was a piece of
infrastructure not covered by federal authority. If they chose
to exercise that to get protection for themselves and the state,
why would the state pick up any resulting loss?
2:56:37 PM
CHAIR SEEKINS said he understood that, but wasn't willing to say
there couldn't be indemnification for something contrary to
federal law. If a decision by RCA were later shown to be
preempted by federal law, he'd have a problem with it.
SENATOR THERRIAULT opined that "federal law" and "a principle of
FERC" are probably two different things. Clearly, RCA cannot
operate contrary to federal law.
CHAIR SEEKINS suggested the following language: "Nothing limits
the powers of the commission except to the extent they are
preempted by federal law, under existing law today." However,
he again expressed concern about indemnifying against something
unenforceable because it is preempted by federal law.
2:57:49 PM
MR. SHEPLER responded:
I don't think that's the situation. I think the
provision of 8.3 contemplates a circumstance where
FERC does not assert jurisdiction. So ... FERC has
stepped aside or doesn't have the authority to go
there in the first place. And your own state statute
would say that ... in the absence of FERC federal
authority, RCA has such authority. And if in
exercising that authority it requires a party to make
a refund ... or charge a lower rate, the question
comes back as to whether the state ought to be
reimbursing the entity that was overcharging for
having to roll back its rate.
I think that's the policy question that Senator
Therriault is raising of ... the anomaly here, where
you have a state agency exercising its authority,
implicitly finding that someone has been overcharged,
and then the state treasury somehow having to come
back and reimburse the overcharging party for some or
all of the overcharge.
SENATOR GREEN recalled discussion at Centennial Hall that
because the contract was based on the premise of FERC control,
everyone was considering FERC rules and regulations as the basis
for the contract, rather than RCA's being part of it. She also
recalled that was the reason for including indemnification.
2:59:48 PM
SENATOR THERRIAULT recalled a struggle a few years back
involving different protections offered by RCA. Smaller
entities in Alaska had seen RCA as a state entity that offered
some protection with respect to rates and access. He voiced the
desire to preserve that power. If RCA finds a tariff rate is
too high and the rate is lowered, he said, the state shouldn't
reimburse it from the state treasury.
3:00:43 PM
MR. LOEFFLER told members he was trying to work within the
confines of the structure. He said yes, there is
reimbursement. But if the tariff is too high - as RCA found in
the TAPS case - because the profit element is too high, there is
no requirement, under the language he'd read to the committee,
to reimburse for lost profits. He continued:
What I'm trying to carefully say is, there is some
limited reimbursement or indemnification possible.
But when you work through the language of the section
and the operative limitations in the contract, I
believe it's quite remote and limited. And so I'm
objecting a little bit to hypotheticals that don't fit
within the language of the contract.
3:01:53 PM
SENATOR GREEN maintained her objection to Amendment 16.
A roll call vote of 6 yeas and 6 nays proved Amendment 16 to
SB 2004 failed, with Senators Kookesh, Olson, Dyson, Wilken,
Elton and Wagoner voting yea, and Senators Stedman, Bunde, Ben
Stevens, Hoffman, Green and Seekins voting nay.
3:02:49 PM
CHAIR SEEKINS informed Senator Therriault that he would look at
the amendment differently if the language could be cleared up as
to what is indemnified.
SENATOR BUNDE opined that SB 2004 is a work in progress, and
that the committee had gone as far as possible until further
information is received.
CHAIR SEEKINS indicated Amendment 5B, set aside during
yesterday's hearing, wouldn't be addressed.
3:03:48 PM
SENATOR BUNDE moved to report SB 2004, as amended, from
committee with individual recommendations and attached fiscal
note(s).
SENATOR ELTON objected.
An initial roll call vote was 10 yeas and 2 nays, with Senators
Kookesh, Ben Stevens, Stedman, Bunde, Dyson, Wilken, Green,
Wagoner and Seekins voting yea, and Senators Olson and Elton
voting nay. Senator Olson changed his vote from nay to yea.
Therefore, CSSB 2004(NGD) was reported from the Senate Special
Committee on Natural Gas Development by a vote of 11-1.
3:05:13 PM
SENATOR BEN STEVENS, in response to Senator Elton, clarified
that as presiding officer of the Senate he'd ruled that this
special committee, which combines the Senate Finance Committee
and the Senate Resources Standing Committee, could serve as the
finance committee in addressing fiscal matters relating to
bills, and thus could satisfy a finance committee referral.
CHAIR SEEKINS pointed out there was a zero fiscal note for
SB 2004. In response to Senator Olson, he said the upcoming
roundtable discussions would address the concept behind this
bill and the entire process relating to natural gas development.
He surmised a similar bill could be considered in a future
special session.
SENATOR OLSON questioned the purpose of those discussions if
SB 2004 has already passed from committee.
CHAIR SEEKINS said he didn't believe the topic had come to an
end. SB 2003 was still open, and there could be discussion of
the general topic of the natural gas contract. The intent was
not to rehash SB 2004, but to talk about the general topic and
have an opportunity for discussion involving consultants, the
producers, the administration and legislators.
SENATOR DYSON agreed and noted a section of SB 2004 had been
stripped that related to collateral agreements, anticipating it
would likely show up in other legislation relating to the LLC
and so forth. Furthermore, there had been discussion in this
committee about needing more information. He said he was
looking forward to the discussions.
CHAIR SEEKINS also told Senator Olson he was eager to pursue the
relationship between RCA and FERC, and needed more time to
consider the effect of indemnification. He closed the hearing,
with CSSB 2004(NGD) reported from committee and SB 2003 held
over.
There being no further business to come before the committee,
Chair Seekins adjourned the Senate Special Committee on Natural
Gas Development at 3:10:18 PM.
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