Legislature(2007 - 2008)BUTROVICH 205
03/31/2007 12:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 31, 2007
12:36 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Gary Stevens
Senator Bill Wielechowski
Senator Thomas Wagoner
MEMBERS ABSENT
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Representative John Coghill
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
WITNESS REGISTER
MARCIA DAVIS, Deputy Commissioner
Department of Revenue (DOR)
Juneau AK
POSITION STATEMENT: Commented on SB 104.
DON BULLOCK, Attorney
Alaska Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Commented on SB 104.
CLICK BISHOP, Commissioner
Department of Labor and Workforce Development (DOLWD)
Juneau AK
POSITION STATEMENT: Commented on project labor agreements in SB
104.
PATRICK GALVIN, Commissioner
Department of Revenue (DOR)
Juneau AK
POSITION STATEMENT: Commented on SB 104.
ANTONY SCOTT
Commercial Section
Division of Oil and Gas
Department of Natural Resources
POSITION STATEMENT: Commented on SB 104.
KEVIN BANKS, Acting Director
Division of Oil and Gas
Department of Natural Resources (DNR)
POSITION STATEMENT: Commented on SB 104.
DONALD SHEPLER
Greenberg Traurig, LLP
Representing the Administration
Washington, D.C.
POSITION STATEMENT: Commented on SB 104.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Resources Standing
Committee meeting to order at 12:36:46 PM. Present at the call
to order were Senators Wielechowski, Wagoner, Stedman, Green and
Huggins. Senator Stevens arrived a minute later.
SB 104-NATURAL GAS PIPELINE PROJECT
12:38:26 PM
CHAIR HUGGINS announced SB 104 to be up for consideration. He
said the committee has two committee substitutes before it,
version C and version E. He said that version C was underlined
and therefore easier to work with so they would be working on
that version, but they would be adopting version E. He said
their task today is to march through version E, discuss it, and
tomorrow they would revisit it and along with amendments.
SENATOR STEVENS joined the committee.
SENATOR STEDMAN moved to adopt version E as the working draft.
There were no objections and it was so ordered.
SENATOR WIELECHOWSKI asked if the only difference between
version C and version E is some underlining.
CHAIR HUGGINS replied that he couldn't guarantee that, but
generally speaking it was.
MARCIA DAVIS, Deputy Commissioner, Department of Revenue (DOR),
added that the only other difference is that version C has a
couple of instances where underlined sections reside in
different locations within the same section in version E. She
would try to point those out.
DONALD BULLOCK, Drafting Attorney, Legislative Affairs, began
pointing out the differences in versions C and E. He said the
first one was on page 8, lines 25 - 27, of version C. It changes
the 43.90.110 (1) and (2) on line 27 to (1) ( A) and (B) and the
specifics in the license language was moved to the end of the
sentence.
The next change was deleting lines 12 and 13 on page 11. Also on
page 11, language was inserted into subsection (b) on line 3
saying when the commissioners are considering the net present
value of the cash flow they will use at a minimum discount rates
of zero, six and eight percent. This language came from
subsection (d) on page 12 of version C.
12:42:44 PM
MR. BULLOCK said that there are changes in version E that aren't
represented in version C. On page 13, AS 43.90.200 refers to
legislative approval and said that it was sent to the specific
standing committees of natural resources. Version E says the
legislature shall introduce a resolution. However, resolutions
need to have sponsors, so there is a drafting issue here. A time
limitation was also inserted on page 13, line 12.
12:43:20 PM
He said the next change is to the inducement section starting on
page 18, line 23. Language is added after AS 43.91.140(7) that
says if the Federal Energy Regulatory Commission (FERC) does not
have a rebuttable presumption in effect, that rolled in rate
treatment applies to the cost of expansion. A similar change is
on page 19, line 24.
12:45:00 PM
MS. DAVIS went through all the changes referring to version C.
She said there were no changes of substance to AS 43.90.010 on
page 1. Page 2, section AS 43.90.100 added a new subsection
saying "(b) Nothing in this section precludes a person's
pursuing a gas pipeline independently from this chapter." This
addition came from the legislative side in an abundance of
caution to make it very clear this was not the exclusive means
of acquiring a right to build a natural gas pipeline in the
state. FERC law also says it is illegal for the state to
preclude another natural gas pipeline project.
She said that subsection (1) (A) in Section 43.90.110 (version
C) makes a change that deals with the 50/50 state match with the
licensee to get to open season. That requirement was removed and
the bid is now variable so that the applicant is to specify in
the application what percent match it desires in a prior season.
The bid is completely variable and could be zero percent both
prior to and after the open season.
CHAIR HUGGINS noted that the administration supports the
provision.
MR. BULLOCK reminded them that this is reflected in the
requirements when entities are responding to the request for
applications (RFP) as well.
12:47:58 PM
MS. DAVIS said subsection (3) in Section 43.90.110 on page 3 was
deleted. It dealt with the job program the state would provide
as an inducement for the AGIA license. It was moved to the back
of the bill into a separate article that makes it clear the
state will be doing this program, but it is not an inducement
that is tied only to the AGIA pipeline. "It is available for any
pipeline."
She said Section 43.90.120 on page 3 of version C relates to the
abandonment of a project. Concerns were expressed about
tightening up language regarding the process for a third-party
arbiter. The revision authorizes both the state and the
applicant to select an arbiter and that they would choose a
chairman of a three-person arbitration panel pursuant to the
American Arbitration Association (AAA) commercial arbitration
rules.
SENATOR WIELECHOWSKI asked her to mention areas the
administration does not support or does not have a position on
as she goes through the substantive sections.
MS. DAVIS acknowledged that request and went on. She said (b)(2)
was added to 43.90.120 on page 3 that clarifies what happens
when one party thinks the project is deemed uneconomic and the
other party doesn't - after an arbitration.
12:50:14 PM
She said page 3 of version C adds Section 43.90.120 (c) that
clarifies abandonment of the project and clarifies that in the
event that the arbitration panel determines the project is
uneconomic or the licensee and the state agree that the project
is uneconomic that the state has a right to receive an
assignment of all the project data, engineering designs and the
license.
Section 43.90.130 on page 4 was originally suggested by the
administration and it incorporated, by reference, the language
of the Procurement Code specifically dealing with appeals of the
award process and the appeals of the actual award. Mr. Bullock
made some revisions to make this section comport with concerns
that that the procurement code language didn't exactly fit this
situation like a glove and the administration supports it. Now
the commissioners are directed to adopt, by regulation, their
own appeal provisions that are going to be substantially similar
to the procurement provisions.
MR. BULLOCK expanded that the reworded language makes references
to the commissioners of the Department of Transportation and
Public Facilities and the Department of Administration and
accomplishes the same thing as far as rights and procedures in
the Procurement Code.
12:51:54 PM
MS. DAVIS said Section 43.90.140 on page 5 of version C deals
with application requirements and is often called the "must
have" section. The first change is under section (2)(B) which
eliminates instate delivery points because the
size/volume/design capacity of those points would be difficult
to know at the time of the application.
12:53:12 PM
MS. DAVIS said subsection (2) (D) was also amended to address
information linked to Canadian portions of the project and the
liquid natural gas project. Additional information was inserted
into both of these sections asking for specific detailed
information that wouldn't necessarily be applicable to a generic
all-Alaska line. Some of this information has come from the
administration, some of it from the legislature, and she was
comfortable with the language.
12:54:08 PM
She said the next substantive change was in the application
criteria section (6) (A) on page 7 of version C. The change came
from the industry side and reflects its concerns about what
costs of expansion can be included. It was clarified that the
state anticipated increased fuel costs associated with expansion
and a reasonable return rate authorized by the regulatory body.
CHAIR HUGGINS asked if the producers communicated this concern
to her or to the administration.
MS. DAVIS replied that it was to her and there was no formal
written document on it at this point. The administration
concurs.
12:55:17 PM
She went to subsection (6) (B) that was inserted to clarify what
is meant by requiring expansions based on reasonable engineering
increments. This reflects compression of pipe additions and a
concern that it be a certain scope of compressor and pipe
change.
CHAIR HUGGINS asked the reasoning behind this modification.
MS. DAVIS replied that the only reason for the change was that
logically first expansions are usually compression changes; the
second expansions are pipe changes and those terms were sort of
mixed up in the bill.
12:56:10 PM
SENATOR WIELECHOWSKI asked for the rationale behind the added
language.
MS. DAVIS replied these words are not added, but rather put in a
different order than in the original bill.
CHAIR HUGGINS explained that for consistency industry prefers to
start with compression expansion and then go to pipe size.
12:56:58 PM
MS. DAVIS said the next substantive change was in the
application criteria on page 8 where section (8) and reflects
the desire by the legislature to see more detail concerning the
gas treatment plant. The administration inserted the first
clause which required the applicant to propose how it was going
to deal with the North Slope gas treatment plant regardless of
whether it was part of the proposal or not. She explained that
an applicant is not required to have a gas treatment plant as
part of its application. But in the instance it would not, there
was concern about the viability of that project if it didn't
address how the gas would be treated. So, this requires them to
provide information about that.
MS. DAVIS said the second half of the paragraph on page 8, line
20, described the gas treatment plant including its design,
engineering and construction. The legislature recommended these
details and the administration was comfortable with eliciting
it.
CHAIR HUGGINS thought he found a typo on page 14 - "that that".
MR. BULLOCK responded that drafting style doesn't allow for
using "such that" and the second "that" refers to a specific
plant.
12:59:41 PM
REPRESENTATIVE COGHILL joined the committee.
1:00:07 PM
MR. BULLOCK said that this is the point at which there is a
difference between versions C and E. Paragraph 9 on page 8 is
reworded thus: "(9) propose a percentage and total dollar amount
for the state's matching contribution under AS 43.90.110(1)(A)
and (B) to be specified in the license." The change was not
substantive, however.
1:00:18 PM
MS. DAVIS went to page 9, line 17, and said that (16) was added
to the "Must Haves" in response to considerable public testimony
to see the state commit to negotiate a project labor agreement
to insure expedited construction and labor stability for the
project by qualified residents of the state before
construction,.
1:01:13 PM
CLICK BISHOP, Commissioner, Department of Labor and Workforce
Development (DOLWD), based him comments on a slide show called
"Jobs are Alaska's Future" to address project labor agreements
(PLA). He said, "A project labor agreement is a comprehensive
collective bargaining agreement that sets the terms and
conditions of employment on a project, for that project only."
The next chart showed the bargaining process between the
licensee and the appropriate entity that would do the
negotiation and how it would result in a collective bargaining
agreement that would be agreed on by both parties. Then the
contractors and the subcontractors would work under the terms
and conditions of that agreement.
He said PLAs were first used in the 1930s and are currently used
widely in both the private and the public sectors. Some private
sector examples are the Trans Alaska Pipeline (TAPS), the
Bristol Meyers Squibb project in New Brunswick, the Goldman
Sachs Office Towers in Jersey City, Red Oak Power Plant, Toyota
and Walt Disney.
He related that a PLA U.S. Supreme Court case set a precedent in
1993 and the Alaska Supreme Court had the Laborer's Local 942 v.
Lambkin 1998. PLAs prevailed in both those cases. He said some
PLA-based public and private project examples are the Grand
Coolie Dam, Hoover Dam, TAPS, San Francisco's BART, and Puget
Sound Transit, a large number of power plants in California,
Seattle Airport, and Seattle Sound Transit.
The reasons to use PLAs are to have a stable work force, to
insure no strikes or lockouts, to meet project scheduling
challenges, eliminate the need to negotiate numerous separate
contracts with individual contractors, insure consistent terms
and conditions for all contractors; it's a good vehicle for
Alaska hire including rural Alaskans, women and other groups,
and it's an excellent apprenticeship opportunity vehicle.
1:05:45 PM
MS. DAVIS noted that Mr. Bishop was missing his daughter's
birthday today and that he also missed her birth because he was
making TAPS a reality. He hasn't missed a birthday since so she
hoped this linkage with TAPS boded well for AGIA.
CHAIR HUGGINS asked if he thought this issue had "been put to
bed."
1:07:51 PM
MR. BULLOCK commented that the issue of whether a government can
require a PLA is not clear. Some cases have said government can
impose the condition when government money is being spent, but
it's not clear that it can be a requirement for a private
project. Under AGIA, the project is licensed, but it is private.
The issue is somewhat mitigated in the bill because a person
must agree to it before submitting an application.
1:08:51 PM
MS. DAVIS said subsection (17) on page 9, line 20, was added to
the application criteria to insure that the applicant doesn't
use the state's $500 million in its rate base and that it is
used as a credit against the cost of service. "We wanted to
insure that upon receipt of any portion of the $500 million that
it would accrue to the benefit of the state as contemplated in
lowering the tariff."
1:09:33 PM
Subsection 43.90.160 on page 10, line 10, deals with proprietary
information and trade secrets. The administration has proposed
quite a few language changes because of comments from the
public, industry and the legislative body. Subsection (a) keeps
certain information confidential until a successful licensee is
determined. The concern was that a successful applicant must
have the application fully out there for the public to see in
its entirety.
CHAIR HUGGINS asked when the information would actually become
public.
1:11:11 PM
MS. DAVIS replied that happens after a license is awarded. She
said subsection (b) provides the ability for the applicant upon
submitting information to the commissioners and learning their
determination as to whether the information may be earmarked as
proprietary or trade secret or not, if it's not considered such
the commissioners will immediately communicate that back to the
applicant who will have the opportunity to decide to leave it in
knowing it will become public or pull it back out because it is
sensitive material.
1:11:36 PM
Subsection (c) provides that an applicant who challenges the
award of a license or the process is deemed to consent to the
disclosures of confidential information. The concern here was
that an applicant who is challenging a successful licensee not
be able to "ambush from the bushes." It was difficult to parse
out what would be appropriate for the public to see.
1:12:28 PM
MS. DAVIS said subsection (d) clarifies a little more what is
"proprietary" by identifying information that would adversely
affect the competitive position of the applicant or materially
diminish the value of that information to the applicant that
they consider to be confidential. Section 43.90.170 on page 10
has a lot of changes, she said, and deals with application
evaluation and ranking.
1:14:33 PM
She went to Version E that had subsection (b) on page 11, lines
2 - 4, that didn't appear in version C until subsection (d).
Added language would now require the commissioners when
evaluating the net present value of the anticipated cash flow to
the state, to utilize, at a minimum, discount rates of 0, 6 and
8 percent.
SENATOR WIELECHOWSKI asked the rationale behind using 0 and 6
percent as opposed to 5 percent.
MS. DAVIS replied this change came from the legislative body and
provides a range of percentages for the commissioners to
consider so that the legislature and the public could look at
the evaluation and understand that there had been no effort on
the part of the commissioners to select a specific rate of
return that would optimize any particular application. The
administration has a little concern about lease-specific
selected percentage rates and she wanted Mr. Scott to address
that issue.
1:17:09 PM
ANTONY SCOTT, Division of Oil and Gas, Department of Natural
Resources (DNR), added that it makes sense to have a range of
discount rates so no one rate is chosen to gain a result. He
explained that a discount rate of zero is not a discount rate,
and does not provide particularly useful information when
evaluating different comparative streams of cash flow. He
recommended picking a number other than zero for a low discount
rate to mimic a rate of inflation, for instance. He suggested
using 2 percent.
MR. SCOTT said he didn't know the motivation behind using 6
percent, but studies by august economists have suggested that a
more appropriate discount rate for the state to use is more on
the order of 5 percent.
CHAIR HUGGINS asked if 8 percent is an upper range.
MR. SCOTT replied that 8 percent makes some sense if you look at
the long term averaged over 10 years returns to the Permanent
Fund.
CHAIR HUGGINS asked if he thought a range of increments was
useful.
MR. SCOTT replied yes.
MS. DAVIS said the next change (version C) was on page 11, line
6 - (b) (2) and reflects what the administration calls "netback
value" which consists of capturing the value of the state cash
flow by taking the revenues minus the expected costs. It was
previous referred to as "wellhead value." She explained that the
administration felt there were advantages to using netback value
and Mr. Banks would describe those.
1:21:23 PM
KEVIN BANKS, Acting Director, Division of Oil and Gas,
Department of Natural Resources (DNR), said using "netback"
instead of "wellhead" makes the arithmetic more explicit in the
calculation. He said that "wellhead flags" might be the right
word to use because there are further deductions that may be
made for some of the gas that is committed to the pipeline and
that arises from allowable deductions for the gas treatment
plant and field costs, which are identified in the 1980 field
cost agreement, which is referenced in Article 3 of the bill.
CHAIR HUGGINS asked if they could resolve that by tomorrow.
MR. BANKS replied yes.
1:22:50 PM
MR. BULLOCK reflected that the PPT discussions considered gross
value at the point of production from which to take deductions
for production of oil and gas. Perhaps "gross value at the point
of production" might be an option. Because the definition of
"gross value at the point of production for gas" also speaks to
the gas treatment plant and which ends of the plant that
valuation is determined.
MR. SCOTT said they are just trying to get to what the state's
revenue is going to be.
CHAIR HUGGINS said for planning purposes if for some reason this
hasn't been resolved by tomorrow it's not a crisis. There is
still some time to go and they want to get it right.
1:23:45 PM
MS. DAVIS went to page 11, line 12, for the next substantive
change that deletes (5) which related to the matching
contribution. The matching contribution is considered a "fairly
insignificant cost element" to the overall project's cash flow
to the state and she felt it was picked up by other elements
making it redundant as well.
MS. DAVIS explained that these were the administration's key
elements to tighten up the evaluation criteria.
CHAIR HUGGINS noted there were no questions.
1:25:06 PM
MR. BULLOCK emphasized that the structure of this section is
that for the valuation purposes, it first of all establishes
that the money is there on paper and has to do with the tariff.
The second part in subsection (c) presumes it looks great, but
asked the question if it is going to happen. These are the
criteria that the commissioner is going to use. You don't want
to be too specific, but you want to be able to identify the most
important things to the state from a policy standpoint. He
emphasized that as they think about this bill, this is one of
its most important parts.
1:26:19 PM
MS. DAVIS pointed out that an addition was made by Mr. Bullock
to both the net present value listing and the likelihood of
success factors in version E on page 11, line 13, that read:
"(5) other factors found by the commissioners to be relevant to
the evaluation of the net present value of the anticipated cash
flow to the state."
She continued down to line 31 (page 11, version E) that inserted
"(6) other evidence and factors found by the commissioners to be
relevant to the evaluation of the project's likelihood of
success." This provision provides the flexibility to insert
additional provisions as they become important.
1:27:37 PM
CHAIR HUGGINS went to (version E, page 11) line 31 and asked if
the commissioners have to address relevant likelihood of success
both positively and negatively.
MS. DAVIS replied:
We don't believe there is. It isn't that we have to
prove the negative - in other words, that we have
found no other factors that are relevant, but to the
extent a factor is considered, it will have to be
evident in the findings and it will have to be
something that is applied uniformly to the
applications.
MR. BULLOCK added that the extra provisions give the
commissioners flexibility. He explained further:
If the award is challenged, the standard of review as
far as the commissioner's decision is whether they
have abused their discretion. So, they have
considerable discretion in identifying the most
successful applicant. Their first review, when they
are considering the factors in (b) and (c) both, they
first of all are considering them among the applicants
themselves - how they compare amongst themselves. Then
secondly, they would apply these factors to what
appears to be the most favored application and then
we'll be more directly related to things like the
performance of that applicant. So, not only is it
better than the others, but it's good enough that we
expect that the project will actually happen.
1:29:12 PM
SENATOR STEVENS said this is a crucial issue because integrity
and good business ethics are hard to weigh. He asked if the bill
could be more specific about how the factors are weighted.
MR. BULLOCK explained that the commissioners have regulatory
authority so they can further define terms that are used in the
bill, but ultimately even the regulations will be subjective in
that regard. He explained:
How do you decide good business ethics? Do you take
into consideration the number of indictments or do
they just don't look good? It is subjective. There is
no way about it. But to the extent that you can
identify some source that you can at least start from
to say whether it's good or bad. I mean....
SENATOR STEVENS said it has to be defensible, too.
MR. BULLOCK agreed and added:
It's abuse of discretion - as long as there is a
reasonable basis for making the conclusion that they
did and the conclusion is that this is the best
applicant. So the evaluation might be a little weak as
far as what integrity and good business ethics
constitute. But overall if it's subject to appeal, the
court is going to look at was this the right
applicant? Did they consider enough facts that a
reasonable person could agree with the commissioners'
decision? And that's the real issue. And that that's
the issue that's overriding all this as opposed to the
different elements that are identified. And to the
extent that additional elements can be identified -
they should be put in the bill.
CHAIR HUGGINS asked if he thought Alaskans would have confidence
in the mechanisms.
MR. BULLOCK replied that it's a risky project and these items
address that. This language gives a good basis for the
commissioners to make their decision.
1:33:02 PM
SENATOR WIELECHOWSKI said because the legislature now has the
authority to approve the decision, it's not really the standard
agency review. He asked if that didn't ultimately take it out of
any sort of agency abusive-discretion review and put it in the
hands of the legislature, at which point there would be very
little review.
MR. BULLOCK replied that the legislative review will be its own
determination as to whether a decision is in the best interests
of the state. As this bill is written, the legislature probably
won't rewrite whatever the agreement is. It will say an
applicant meets the qualifications or not. The bill is written
with a final administrative decision after the legislature
approves the license. That would be subject to appeal at that
point and is located in version C on page 13, lines 3 - 5. The
review would consider the actual record of the commissioners'
decision-making in determining the best applicant.
1:35:09 PM
SENATOR WIELECHOWSKI said he wants to make this bill as bullet
proof as possible and he views this as essentially a legislative
action, so there is really very little right to an appeal.
MS. DAVIS responded that they had also listened to Senator Ted
Stevens when he spoke to the body and gave them the admonition:
"Make it unappealable!" So, they have inserted language in the
application Must Haves that says "as a condition to filing an
application, you hereby agree not to appeal, challenge, or
legally attack the award of the thing." The Attorney General's
analysis indicated that language was legal and constitutional.
MR. BULLOCK went on to explain that two issues were raised that
have to do with separation of powers and approval of the
contract by the legislature is one. The other issue is the
legislative confirmation of the AGIA coordinator. There are
constitutional limitations on nominations so the legislature has
the power to approve. There is also a constitutional issue as to
whether this form of a contract is an executive power and
whether the legislature can actually kill it if the executive
believes it should go forward. This issue may affect the
ultimate approval.
He said this bill provides for legislative disapproval rather
than affirmative approval. This section now requires legislative
action and affirmative approval. He wasn't sure how the other
issues would be resolved. Once they are identified, the second
question becomes who will bring it up.
1:38:59 PM
MS. DAVIS went back to section AS 43.90.180 of version C on page
12, line 5, relating to the notice, review and comment period.
It provides for the commissioners, once they have determined
applications are complete, to publish notice that the
applications are complete and put them out for a public review
and comment for 60 days. The addition or change that the
administration made to this section is in subsection (b) - where
there is proprietary or confidential information being withheld
from public review, the applicant is required to generate the
summary of that information, which if the commissioners find
that's an adequate summary, that will be what is put out for
public review.
1:40:12 PM
MR. BULLOCK had a structural suggestion to consider moving this
section above the criteria and add a provision in the criteria
that allows the commissioners to take the public comments into
consideration as part of their decision-making process.
MS. DAVIS said the administration is comfortable with that
change.
SENATOR WIELECHOWSKI said he thought that was an excellent idea.
MR. BULLOCK said the way it is written now the public will be
looking at all applications by virtue of where the public
comment section was placed.
CHAIR HUGGINS said one of the scenarios he has heard is that the
legislature will do further airing of the selected application
so Alaskans understand why that application was considered to be
the winning one.
MR. BULLOCK looked ahead at the alternative of legislative
approval by resolution or bill. If it is introduced as a bill,
then it's subject to the committee process, the three readings
and the other requirements that relate to bills.
1:42:28 PM
MS. DAVIS said there are no substantive changes to section
43.90.190 - the notice to legislature of intent to issue license
on page 12 of version C. However, section 43.90.200 on page 13
has a substantial revision suggested by the legislature.
MR. BULLOCK explained that version C says the commissioners
determine the most likely applicant to receive the state's
license and "send it to the House standing committee and the
Senate standing committee having jurisdiction over natural
resources." The reason a specific committee was not named is
because standing committees are a matter of rule and not of
statute. In version E, jurisdictional language for the House
standing committee and the Senate standing committee isn't there
and it now says "the legislature shall introduce a
resolution...." He said it would be helpful to identify a
sponsor and he suggested identifying a committee or the speaker
or the president, to make that request through the Rules
Committee.
1:44:26 PM
The second change relative to version C on page 13, line 12, is
that version E adds "within 100 calendar days" after the receipt
of the determination. This raises an issue similar to the first
one that said the 30th legislative day.
1:45:00 PM
SENATOR WAGONER said this changes the whole timeline on the
process that was set up. The legislature does not have the
authority to make contractual changes so he didn't know why it
would take longer than 30 days to review a contract. One hundred
days is way too long and he wanted to hear from the
administration on that.
1:45:49 PM
COMMISSIONER PATRICK GALVIN, Department of Revenue (DOR), shared
Senator Wagoner's concern that 100 days would take them beyond
the 2008 field season, but he felt that it was needed in the
bill as a stop gap measure in case there the commissioners'
decision.
SENATOR WAGONER said his biggest concern is the cost of the
project and how delays will affect it.
1:47:19 PM
MR. BULLOCK said the legislative approval raises a number of
issues. For example, the way bills carry over from the first
regular session to the next regular session. If it was
considered in a special session, the special session runs out of
time and you know that the resolution didn't pass and that it
wasn't approved. If this 100 calendar days happened when 20 days
were left in the first regular session, the session would run
out, but the bill wouldn't necessarily have failed, because it
could be carried over to the next general session. But within
100 days could still be 80 days after the session ends. So that
requires that the legislature be in session and be able to
consider and take action. He didn't know a best way to resolve
it.
1:48:23 PM
COMMISSIONER GALVIN added that they recognize the existence of a
number of parliamentary questions associated within the various
options for approval.
1:49:33 PM
SENATOR STEDMAN said they all recognize Senator Wagoner's point
about delays and rising costs of materials. He expected that the
legislature would be very focused on making sure the state gets
the best project possible and he was comfortable with the 100
calendar days for approval.
SENATOR WAGONER reflected that they hadn't gotten through AGIA
yet and the PPT took 190 days to pass last year. The best laid
plans can go awry. He really felt that 100 days was out of the
question.
CHAIR HUGGINS said he agreed, but he also made the case for
having 100 days - because of how long it took to get the PPT.
SENATOR WAGONER responded that they aren't taking action on the
contract. It's an up or down vote.
CHAIR HUGGINS asked Commissioner Galvin when the legislature is
scheduled to receive the contract.
COMMISSIONER GALVIN replied around mid-December to the end of
January depending on how complex the issue is. He projected that
the commissioners' decision and notice to the legislature would
happen at the end of January.
1:55:01 PM
CHAIR HUGGINS reminded them that the legislature will last for
90 days next year and that it's undetermined about when it will
start. They might not be in session when the commissioners
decide.
1:57:49 PM
COMMISSIONER GALVIN responded that the timeline is a balance
between wanting public confidence and legislative approval.
1:59:13 PM
MR. BULLOCK commented that they need to consider how much time
the legislature as a practical matter will need to do this and
if it will be in session at the time - while the clock is
running.
SENATOR STEDMAN said he couldn't imagine that the legislature
wouldn't take prompt action on the biggest project facing any
generation that's alive today. The legislature could call itself
in.
2:00:46 PM
SENATOR WAGONER said he has heard those statements before and
getting the number of people to vote to call them back into
session is not that easy - even facing a gasline and he thought
they were stepping into a quagmire.
CHAIR HUGGINS said he thought it was fair to say that the
average Alaskan wants lawmakers to get this done and he has full
confidence that they will do that. He said they went with 100
days because that is what it took to get this bill to move to
the next committee by next Monday.
2:02:00 PM
MS. DAVIS went to version C, Section 43.90.210 on page 13, line
19. The administration recommended changing subsection (a) to
insure that because a licensee is being directed to accept the
certificate from FERC or the RCA, recognizing that there could
be onerous conditions or conditions that they find
inappropriate, it wanted to provide time for them to be able to
appeal and challenge those before they were required to accept
the certificate. So language was inserted at the end that
provides that they must accept "when all rights of appeal
relating to the certificate have expired."
SENATOR WIELECHOWSKI asked how long an appeal can last.
MS. DAVIS said that additional language needs to be inserted
that makes it clear it's the administration's position they are
talking about an administrative appeal as opposed to further
judicial and court appeals.
2:03:29 PM
DON SHEPLER, Attorney, Greenberg and Traurig, representing the
Administration, answered that the FERC has a process known as
"rehearing" and once a certificate order is issued, it could
have conditions with it. The party that receives that
certificate has 30 days by law in which it can request a
rehearing of that order. Once rehearing has been sought, there
is no deadline for the commission itself to act on that
rehearing application. It's an open-ended process at the FERC.
To the extent that this language talks about court appeals, once
the FERC is through with the proceeding and has issued its final
order on rehearing, that order can be appealed to the Court of
Appeals for the District of Columbia circuit within 90 days.
Under a 2004 federal statute, the court is charged with
expediting any appeals coming out under the 2004 federal
legislation. That being said, he pointed out that they are still
waiting for a decision from the same Court Of Appeals on FERC's
order in 2005. He elaborated:
It all depends as to how long the regulatory process
can take. The regulatory process, itself, is open-
ended in that while the certificate holder has a time
period within which it has to act, there's no drop
dead date for the commission and certainly while there
is an obligation on the certificate holder, a deadline
within which it has to file an appeal, there is no
deadline by which the court has to act.
2:06:11 PM
SENATOR WIELECHOWSKI asked if this was industry standard. "Why
do we have to have that when all rights of appeal have expired?
Could we essentially force them to accept the certificate after
they've been awarded the certificate?"
MR. SHEPLER replied that would be an option available to the
state. However, the thinking on the administration's part is
that the applicant should have the ability to make its case for
changes to the conditions. But their thinking is also that at
the end of the day when all appeals are over and done with, what
you have is a finding, potentially affirmed by the Court of
Appeals, that this package of certificate and conditions is
required by the public convenience and necessity. Their thinking
was that at that point, the findings had been made and it was
incumbent upon the applicant to accept that certificate on the
basis that the federal government had found that this was the
public convenience and necessity required.
SENATOR WIELECHOWSKI asked if this is standard language - to
have the certificate issue after all rights have expired and if
it would be bad public policy to force it before their rights of
appeal have expired? He was worried about this getting strung
out for years.
2:08:11 PM
MR. SHEPLER replied that was a fair question. The difficulty as
a matter of public policy is when you say it should go forward.
You could say it's after the FERC axe, because then the
applicant would potentially be deprived of their right under the
Natural Gas Act to seek judicial review.
He explained that pipeline companies and entities that are
regulated by FERC routinely engage in what are called settlement
agreements to resolve typically rate cases, certificate cases,
and whatever else comes before the commission. It is not
uncommon for the provisions to require certain actions to be
taken, but only when there is a final non-appealable order from
the commission. "So, waiting until the final shoe has dropped,
so to speak, is somewhat conventional in the industry."
2:09:23 PM
CHAIR HUGGINS asked the origin of this amendment.
MS. DAVIS replied that it came from industry concerns that the
certificate would be onerous and they wanted an opportunity to
fine-tune the certificate for purposes of making the commercial
project the best they thought it needed to be.
She thought the language "all rights of appeal" was fairly broad
and included both administrative appeals and judicial court
appeals. She suggested one option for the legislature would be
to limit it to the administrative appeal, for instance. But that
would require industry having to forego the judicial review -
unless there's an opportunity to accept the certificate after it
has been finally appealed to the FERC with the condition that
they could continue to fight issues at a court level.
2:10:58 PM
MR. BULLOCK looked at the reasons a certificate might be
appealed. Under the abandonment provision in AS 43.90.120, the
state could review whether the project was becoming uneconomic
after a while and whether it should be abandoned or not so the
state could try for another project. In that section,
"uneconomic" has not been defined as to whether it's from the
standpoint of the project or the state or both. If the appeal
goes on too long, a point could be reached where the project is
no longer economic for anybody.
CHAIR HUGGINS asked Mr. Shepler what he recommended.
MR. SHEPLER agreed with MS. DAVIS that the state should allow
the applicant to go to the FERC, but it would have to abide by
what the FERC decided. That would certainly be a shorter process
than waiting until the end of a court appeal. If the
legislature's interest was in timing and speed, then cutting
this off at mid-stream would be their answer.
CHAIR HUGGINS wondered what would happen if they cut it off at
administrative appeal and it affects other people.
2:13:21 PM
MR. SHEPLER pointed out that other provisions in the bill
provide that the licensee can tender back the accepted
certificate to the state or its designee by going through
whatever process is necessary at the FERC to have somebody else
step up to the plate and take over the certificate. But then he
argued that perhaps it would be best to allow things to go
through the judicial process as well, even though that would
clearly add delay.
CHAIR HUGGINS asked him to come up with reasonable fixes for
this issue before tomorrow.
SENATOR WIELECHOWSKI said as a matter of public policy, this
section has the potential of setting the project back for years
and costing the state billions of dollars.
CHAIR HUGGINS asked if Drue Pearce might have a role at this
time.
2:15:37 PM
MR. SHEPLER replied that he thought this would be outside her
jurisdiction because two federal entities are involved- the FERC
and the Pipeline Coordinator's Office which is in charge of
insuring that all of the other federal entities do expeditiously
what they are required to expeditiously.
2:16:43 PM
CHAIR HUGGINS recognized a Marine who just stepped into the
room, Mr. Josh Tipple.
2:16:55 PM
MS. DAVIS pointed out that when they say that all rights of
appeal relating to the certificate have expired, they have not
restricted it to appeals by the applicant. It might be the
state's appeal or a shipper's appeal or environmental issues
relating to environmental permits or requirements.
CHAIR HUGGINS said he thought that an environmental challenge
would put interested parties in a dilemma and that would drag
things out. They know this happens quite often.
MR. BULLOCK added that any process like this has environmental
provisions in a tariff that would be addressed like dissembling
the pipeline at the end of a project. "The risk is there."
2:18:26 PM
MS. DAVIS went to page 14, line 17, of version C that inserts
similar language in (f) that defines the date by which the
requirement for sanction either within one year or five years is
benchmarked off of and making the effective date of the
certificate of public convenience and necessity issued by the
FERC or RCA to be the date when all rights of appeal relating to
the certificate have expired.
She said a somewhat substantive change is in Section 43.90.220
on page 14, line 21, where the administration recommends an
additional criterion for balancing whether a modification should
be allowed and that is whether it affects the project's
likelihood of success; before it just related to the value of
the project.
She said Section 43.90.230 on page 14 - 15 relates to the
reports, records, conditions and audit requirements and has been
changed in subsection (b) to clarify the intent that the ability
of commissioners to audit relate only to those of an entity that
has received the state money or has made expenditures with it.
The industry was concerned this could be used as an opportunity
to springboard into many of their corporate records that might
not relate to the state funding requirements. Subsection (c)
attempted to do the same thing by inserting language that tied
it to the rights to conduct hearings and investigative
enquiries, compel attendance, and production of documents with
respect to information relating to the project. Again, it ties
it back to the project. Mr. Bullock performed his magic on
reworking the diction which explains some of the differences in
the CS recommendations.
2:20:51 PM
SENATOR WIELECHOWSKI asked if there was a substantive change in
(b).
MS. DAVIS replied the only change was switching "licensee" it to
"the entity receiving the state money or making expenditures."
That was because "licensee" is defined in the bill as including
all of its affiliates. "Affiliates" are defined as any entity in
which it owns a 10 percent interest which casts a very broad net
from the industry's perspective. She said:
This section didn't get changed with respect to the
scope of searching out where the state monies were
spent or covering it - because this section is
targeted toward the use of the state matching monies.
Section (c) opens it up more broadly for the more
general review of records and documents that relate to
the license in general.
SENATOR WIELECHOWSKI said that was his concern. The state still
has the ability to compel that information if it feels the
entity is dragging its feet.
MS. DAVIS said that was correct.
2:22:47 PM
MS. DAVIS said the next substantive change was in section
43.90.240 which begins on page 15, line 20,. The key change
recommended by the administration is a piece that was missing
from a list of the remedies available to the commissioners which
was the ability to require the assignment of the engineering
data, contracts, permits, etc. It has the license revocation
provision, but not one for the state to get back its matching
funds.
She said Article 3 contains a section on resource inducements.
2:23:43 PM
SENATOR WIELECHOWSKI asked regarding page 16, line 19, section
(4) if a catch all phrase should be added - "and any other
information pertinent to the project" or something of that
nature.
MS. DAVIS agreed and said that is consistent with the
administration's intent. She went on to say section 300 sets up
the qualification to receive resource inducements which are the
tax and royalty benefits. There have been language additions to
this section as well as 310 and 320 that relate to the
administration's desire to tighten up the underpinning of these
inducements as contract rights. Again, the effort is to insure
that the state is supporting the constitutionality provisions in
insuring they will be durable and withstand any sort of judicial
challenges. So, the last line on page 16 of version C states
specifically "The inducements set out in section 310 and 320 are
contractual."
She explained the reason for this is because the courts are not
going to presume a contract. They need to see an express
legislative statement of intent that a right that has been
created is in fact intended to be a contractual right.
MS. DAVIS said the other change in these three sections is where
"lessee" has a following clause added that says "or other
qualified person". The reason the administration recommended
this change is because it became aware in talking to people in
the industry, that particularly people who are going to buy gas
from producers, that there is a likelihood or a possibility that
they would buy gas on the North Slope and be responsible
themselves both as the purchaser to take care of the shipment of
that gas. Previously, the tax and the royalty benefits flowed to
a lessee and the concern is that the lessee in that case would
not be acquiring capacity to ship that gas. They instead would
be having someone else buy it and then the person buying it
would not receive the benefit of those resource inducements.
"This opens that up so that if the purchaser acquires the
capacity to ship gas which enhancers our ability to have a
pipeline, the tax and royalty benefits will flow through to the
gas that they have purchased and the lessee that holds it will
be able to pass that benefit on to the purchaser of that gas as
they currently pass on the burden of those elements."
2:26:36 PM
CHAIR HUGGINS said he didn't think any parties would object to
that and "it's a net gainer for the state in flexibility."
MS. DAVIS said she's been told they might want to add a
definition of "other qualified persons".
CHAIR HUGGINS said lets do that.
SENATOR WIELECHOWSKI pointed out a spelling error on page 18,
line 14 where "amend" should be "amends".
2:28:00 PM
MS. DAVIS said the other key change to this section was the
addition language from the legislature saying that attempts to
modify the existing language which requires a contractual
commitment by the entity receiving the resource benefits that
they not protest the rolled-in rates that are required to be
proposed and supported by the pipeline company. As it exists
under the bill, those obligations are identical for the pipeline
company as well as for the holder of the resource inducements.
The suggested change from the legislative body is that
the obligation on the part of the resource holder be
different and that they not have that obligation to
support a 15 percent on top of a maximum recourse rate
unless the existing rebuttable presumption with FERC
goes away. This achieves the obligation on the part of
a resource holder to undertake the potential for this
future obligation if FERC changes its current rules.
So, it's a contingent obligation and it only comes
into play if FERC moves away from its rebuttable
presumption in favor of rolled-in tariff rates.
2:29:30 PM
MR. SHEPLER stated that AGIA was drafted symmetrically. In
exchange for the license the entity had to commit to file for
rolled-in rates for expansions up to the 15 percent limit. The
symmetry was achieved in tying the resource inducements, the
royalty and tax benefit certainties, to the commitment by those
entities receiving those benefits from the state that they would
not in turn litigate the rates the state is demanding that the
pipeline company file for at the FERC.
This amendment delinks that symmetry and implicates
whether or not the state is really going to get or
must have rolled in pricing for expansions up to some
ceiling. The thinking was that in large part, the
resource inducements, the royalty and the production
tax certainty, would go to parties that would be the
shippers on the pipeline. Now with the fact that the
pipeline had to file for rolled-in rates combined with
the fact that those entities agreed not to protest the
rolled-in pricing as required by for the pipeline, the
state has some degree of certainty that expansions are
going to be priced on a rolled-in basis. I say some
degree of certainty because the FERC is at the end of
the day going to make the decision. And what the
pipeline proposes may or may not be what the FERC
disposes of and resolves.
But if the pipeline line proposes and the shippers do
not oppose before the commission rolled-in pricing and
so long as the commission itself has a rebuttable
presumption in favor of rolled-in pricing, the state
has a high degree of confidence that rolled-in pricing
at the end of the day is going to be the rule for
pipeline expansions. Now, I think Antony can discuss
with you some of the implications of whether you have
that certainty or not, because I think it's very
critical to the future of the state.
2:32:54 PM
MR. SCOTT explained that the bill contemplates certainty for
three different parties, some of whom may all be the same
parties - the initial shippers only, the mid-stream entity that
receives the license (the damage provisions insure that "the
state dances with whom we brung," so it doesn't abandon
potential pipeline applicant if another party comes forward with
what it thinks is a sweeter deal). The certainty created around
rolled-in rates is very important for potential explorers. The
proposed change to the bill would create some significant
uncertainty as to the ultimate pricing and the value of
prospects where having rate structure is very important. "So the
administration's view is that it is appropriate to maintain the
symmetry that Mr. Shepler referred to earlier in the bill."
2:35:06 PM
CHAIR HUGGINS asked him to continue looking at these provisions
and advise the committee.
The committee took an at-ease from 2:36:08 PM to 3:02:13 PM.
3:02:13 PM
MS. DAVIS went to page 19, line 5 that is the gas production tax
exemption. The language change is to emphasize the contractual
nature of the commitment. In addition in version E, page 19,
line 25, the same language that relates to changing the
requirement that the resource shipper commit to accept the
rolled-in rate provisions of the pipeline company have been
modified here as well at line 25. It is the exact language that
was inserting in the previous royalty provision.
SENATOR WIELECHOWSKI went up to line 13 and remarked that the
whole contract has been using both commissioners and then all of
sudden it switches to the commissioner of the Department of
Revenue. He asked if that was intentional.
3:03:56 PM
MS. DAVIS replied that in the royalty provision which precedes
this section 310, there is a form for commitment to this
contractual provision and that is entered into just between the
commissioner of the Department of Natural Resources and the
resource holder for the benefit; so it is a contract just
between the two. In this instance, because it's the tax
provision, the contract is being entered by the commissioner of
the Department of Revenue (DOR) and the resource shipper because
royalty is within the jurisdiction of resource and the tax
provisions would be under jurisdiction of the Department of
Revenue.
MR. BULLOCK added that he was commenting on the tax exemption
and that Article 9, Section 1, of the constitution prohibits
contracting away or suspending the state's taxation power. To
the extent that this is interpreted to lock in a tax rate and
prevent a future legislative adjustment to it, it is
unconstitutional. There is an exception to Article 9, Section 1,
and Article 9, Section 4, which provides for exemptions.
Exemptions may be enacted and it specifically requires that they
be enacted by general law that would be subject to review by a
future legislature.
Making this a contractual provision not only violates
Article 9, Section 1, but it brings in, like Ms. Davis
said, Article 1, Section 15, that prohibits the
legislature from passing a law that impairs the
obligation of a contract. By making it a contract, you
violate both the Article 9 provision and present an
Article 1, Section 15, issue to a future legislature.
3:06:06 PM
CHAIR HUGGINS asked for the solution.
MR. BULLOCK replied that the solution is to back up and look at
what they are dealing with. The state has two interests in the
oil and gas resources; it's an owner and it's the taxing
authority. As an owner, it can negotiate leases with contracts.
There is no provision in the constitution that prevents
adjusting the leases.
As a matter of fact, what the royalty inducement
offers is a basis for amending existing contracts.
Those regulations will come up with an alternative for
the determination of the state's royalty share. And as
an owner, you could negotiate on the amount of
royalty. So there is flexibility there.
The Article 9, Section 4, is an exception, the only
exception in Article 9 which is the financial part of
the constitution - provides for exemptions. And if you
took the language strictly there, you could arguably
create an exemption for say 10 percent of the
throughput of a producer through the capacity that
they identify during the first binding open season.
But, again that would be a general law and subject to
review - if you started off, say with 10 percent. And
it turned that was giving the effect you wanted, well
then, you would be free to raise it [indisc.]. If the
state had another earthquake or a flood, and the state
needed revenue, which historically has happened, you
could reduce the 10 to 5, but the flexibility is
there, because it's not locked in the contract and the
power to tax has not been suspended.
Historically, TAPS was delayed. In October 1973 there
was a special session of the legislature that enacted
a tax on the oil and gas production property and in
1975 TAPS was still delayed - the legislature enacted
a reserves tax. By locking it into contract, you not
only are inviting litigation, [indisc.] buy you're
also tying the hands of future legislators that would
have to deal with the Article 1, Section 15, as to
whether they are impairing a contract.
3:08:37 PM
MS. DAVIS reflected that it is the department's intent to
created fiscal certainty around the tax relief or the tax
benefit this section creates and to do it in the most
constitutionally defensible manner possible. They have been
working on it and continue to improve it. She has heard
different view expressed by different learned people regarding
the interpretation of Article 1 and Article 9 and whether the
legislature can bind future legislatures and exemptions. They
will whatever is necessary to make this language work.
3:10:39 PM
CHAIR HUGGINS asked Mr. Bullock if he said "exemption" may be
more palatable.
MR. BULLOCK responded that was more likely than not to be
acceptable, because the constitution says it can be an exemption
and that it has to be enacted by general law.
CHAIR HUGGINS said it is an important provision and they will
continue to work on it.
MR. BULLOCK noted that ultimately the Alaska Supreme Court will
decide whether something is constitutional or not, but the
legislature has the opportunity to decide how much risk it wants
to take.
SENATOR WIELECHOWSKI said he thought there were ways to do it -
legislatures bind future legislatures all the time - on things
like leases.
MR. BULLOCK reflected that he review state contracts that the
legislature enters into and they always have a provision that
even in a long-term lease, that the lease is subject to
appropriation by future legislatures; so they are not binding on
future legislatures. This is important for long-term leases in
the context that it has become a debt obligation to the state.
3:13:07 PM
MS. DAVIS went on to Article 4, which contains the AGIA
coordinator section of 43.90.400 at the bottom of page 19 of
version C. The only change that the administration wanted to
make was to change the wording to make it clear that the
position will terminate, not the person.
MR. BULLOCK said the legislative confirmation issue in the
section raises a separation of powers issue. The constitution
recognizes that heads of agencies and quasi-judicial agencies
are subject to confirmation by the legislature and it's been
quite narrowly construed. It's an executive versus legislative
branch issue.
MS. DAVIS said Section 43.90.410 on expedited review has no
substantive changes. The following section is new, 43.90.420 and
it is a restatement of what used to appear at the beginning of
the bill under the listing of inducements for an AGIA pipeline
builder. So, the job development program is no longer linked to
just the AGIA license project, but it is now a stand-alone
program that would be focused on any pipeline, not just this
specific project.
3:15:31 PM
SENATOR STEVENS said he assumes it says elsewhere that the
person who receives a contract will utilize this.
MS. DAVIS replied absolutely. There is a requirement to commit
to use the workforce in the must have section. She went on to
Article 5 which contains the miscellaneous provisions and there
are no substantive changes to 43.90.500,.510,.520 .
SENATOR WIELECHOWSKI said the original version of the bill had a
section on statute of limitations and asked where those reside
in the new version.
MR. BULLOCK remarked that the AGIA coordinator and the expedited
review by state agencies were moved out of Article 3 into
Article 4, because they were more applicable generally than just
to the inducements and those sections had to be renumbered.
3:17:29 PM
MS. DAVIS said the next substantive change was on page 22, line
3, of version C, section 43.90.540. The change was recommended
by the administration and deals with the commitment by the state
that it will honor and stand behind the licensee that is
selected under AGIA and that it won't back another project
financially or through tax or royalty preferences. It clarifies
that the commitment by state only endures prior to the
commitment of a commercial operation of a project. The other
piece that is changed is at the end of the section there is an
added sentence that says "In this section, a competing natural
gas pipeline project means a project designed to accommodate
throughput of more than 500 Mmcf/day of North Slope gas." The
intent is not disable the state's ability to provide support,
monetary, royalty tax support for a project that would
essentially be either the spur line off of a main line or the
bullet line from the North Slope to Fairbanks. She mentioned a
typo of having to insert a large "M".
SENATOR WIELECHOWSKI asked if a project delivers gas to Canada
would the ANGDA proposal be considered as competition.
MS. DAVIS replied if the ANGDA proposal is a pipeline that
carries a 1.5 bcf/d from the North Slope all the way to Valdez
for the purpose of an LNG project that would exceed 500 miles
and would be a competing project if another pipeline had been
licensed for that route. If the licensed project is designed to
go from the North Slope to Alberta or Chicago and the ANGDA
group comes forward and seeks to have an instate tie to that
line, that would then go down to Valdez, that spur technically
would not be a competing line - notwithstanding the fact it
might be longer than 500 miles- because no portion of that route
is the same route as the licensed pipeline project.
3:20:52 PM
SENATOR WIELECHOWSKI said he thought that definition was
extremely broad and presented potential problems for spur lines
and bullet lines.
MR. BULLOCK added that right now the limitation is how much goes
through and that it originates on the North Slope and more could
be done in terms of allowing differing routes.
MS. DAVIS said they would work to further refine the definition
so that it doesn't exclude things they don't intend to or
include things they don't intend to include.
She went to 43.90.550 on assignments that had no substantive
changes. That a transfer would not impair the likelihood of
success of the project in addition to not impairing the value
was added to (a)(2). Section 43.90.560 on conflicting laws on
page 23 of version C had no changes. Section 43.90.570 added a
section entitle "severability". The purpose of this section is
to shore up the act in the eventuality that a section was deemed
unconstitutional. "Again, the intent here is to reflect the fact
that under the tax and royalty provisions, whether something is
deemed constitutional is not a risk that's being taken by the
state, but rather we would expect the bill to march forward
regardless of an ultimate determination on those provisions.
Article 6 on general provisions, Section 43.90.900 on
definitions had a substantive change on page 24, line 17 where
it adds a definition for North Slope. Section 43.90.990 has not
change. Section 2 on page 25, line 5, of version C had a small
amendment to change from a third party arbiter to arbitration
panel to conform to the other changes regarding the arbitration.
3:24:02 PM
MS. DAVIS said there are no more technical changes. Section 4
previously had a provision that dealt with insuring under the
public records act, the state was exempting from disclosure
records that were proprietary or trade secret or pending the
confirmation that applications have been received and actions
taken such that they become disclosed either because they are
the successful applicant or there's a challenge. To conform with
legislative drafting requirements, Mr. Bullock had incorporated
the entire section into which this change is inserted. It's more
of a format presentation difference.
CHAIR HUGGINS went back to page 23, section 43.90.900 where
"other qualified person" was defined.
MS. DAVIS said she had already noted that definition was going
to be added.
CHAIR HUGGINS asked if there were any more comments.
3:26:08 PM
MR. BULLOCK wanted to comment on some things that might help the
amendments move more easily with the committee. The best way to
get what they want is to start off with the version of the bill
that is being amended and write what they want on the page.
The committee took an at-ease from 3:27:42 PM to 3:35:04 PM.
CHAIR HUGGINS said the parties would get together with Mr.
Bullock so they could have a CS by tomorrow. There being no
further business to come before the committee, he adjourned the
meeting at 3:36:03 PM.
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