Legislature(2005 - 2006)BUTROVICH 205

05/04/2005 03:30 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 71 OIL& GAS EXPLORATION CREDIT & LEASE TERMS TELECONFERENCED
Heard & Held
+ HB 26 SHORT-TERM COM FISHING CREWMEMBER LICENSE TELECONFERENCED
Heard & Held
+ HB 286 VALUE OF ROYALTY ON GAS PRODUCTION TELECONFERENCED
Moved SCS HB 286(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                          May 4, 2005                                                                                           
                           3:36 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
Senator Gretchen Guess                                                                                                          
Senator Ben Stevens                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR HOUSE BILL NO. 26(FIN)                                                                                                   
"An  Act relating  to  short-term  commercial fishing  crewmember                                                               
licenses; and providing for an effective date."                                                                                 
     HEARD AND HELD                                                                                                             
                                                                                                                                
CS FOR HOUSE BILL NO. 71(FIN) am                                                                                                
"An  Act providing  standards for  the interpretation  of certain                                                               
terms in state oil and  gas leases and unit agreements, requiring                                                               
development, production,  processing, and  marketing of  gas that                                                               
is  determined to  meet those  standards, and  setting a  maximum                                                               
time  limit   on  that  activity;  extending   and  amending  the                                                               
requirements applicable  to the  credit that  may be  claimed for                                                               
certain oil and  gas exploration expenses incurred  in Cook Inlet                                                               
against oil and gas properties  production (severance) taxes, and                                                               
amending the  credit against those taxes  for certain exploration                                                               
expenditures  from  leases  or   properties  in  the  state;  and                                                               
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 286                                                                                                              
"An Act amending  the manner of determining  the royalty received                                                               
by the state  on gas production by directing  the commissioner of                                                               
natural  resources to  accept, under  certain circumstances,  the                                                               
transfer price of the gas  if established by transfer price order                                                               
of  the Regulatory  Commission of  Alaska; and  providing for  an                                                               
effective date."                                                                                                                
          MOVED SCS HB 286(RES) OUT OF COMMITTEE                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB  26                                                                                                                  
SHORT TITLE: SHORT-TERM COM FISHING CREWMEMBER LICENSE                                                                          
SPONSOR(s): REPRESENTATIVE(s) MOSES BY REQUEST                                                                                  
                                                                                                                                
01/10/05       (H)       PREFILE RELEASED 12/30/04                                                                              
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       FSH, RES, FIN                                                                                          
02/09/05       (H)       FSH AT 8:30 AM CAPITOL 124                                                                             
02/09/05       (H)       Heard & Held                                                                                           
02/09/05       (H)       MINUTE(FSH)                                                                                            
02/16/05       (H)       FSH RPT CS(FSH) 4DP 1NR                                                                                
02/16/05       (H)       DP: WILSON, ELKINS, LEDOUX, THOMAS                                                                     
02/16/05       (H)       NR: SALMON                                                                                             
02/16/05       (H)       FSH AT 8:30 AM CAPITOL 124                                                                             
02/16/05       (H)       Moved CSHB 26(FSH) Out of Committee                                                                    
02/16/05       (H)       MINUTE(FSH)                                                                                            
02/23/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
02/23/05       (H)       Scheduled But Not Heard                                                                                
02/28/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
02/28/05       (H)       Moved CSHB 26(RES) Out of Committee                                                                    
02/28/05       (H)       MINUTE(RES)                                                                                            
03/01/05       (H)       RES RPT CS(RES) 7DP 2NR                                                                                
03/01/05       (H)       DP: KAPSNER, LEDOUX, SEATON, ELKINS,                                                                   
                         CRAWFORD, SAMUELS, RAMRAS;                                                                             
03/01/05       (H)       NR: OLSON, GATTO                                                                                       
04/25/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/25/05       (H)       Moved CSHB 26(FIN) Out of Committee                                                                    
04/25/05       (H)       MINUTE(FIN)                                                                                            
04/26/05       (H)       FIN RPT CS(FIN) 7DP 1NR                                                                                
04/26/05       (H)       DP: HAWKER, HOLM, MOSES, KELLY, FOSTER,                                                                
                        MEYER, CHENAULT;                                                                                        
04/26/05       (H)       NR: JOULE                                                                                              
04/28/05       (H)       TRANSMITTED TO (S)                                                                                     
04/28/05       (H)       VERSION: CSHB 26(FIN)                                                                                  
05/01/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/01/05       (S)       RES, FIN                                                                                               
05/04/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: HB  71                                                                                                                  
SHORT TITLE: OIL& GAS EXPLORATION CREDIT & LEASE TERMS                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/12/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/12/05       (H)       W&M, O&G, RES, FIN                                                                                     
02/11/05       (H)       W&M AT 8:30 AM CAPITOL 106                                                                             
02/11/05       (H)       Moved CSHB  71(W&M) Out of Committee                                                                   
02/11/05       (H)       MINUTE(W&M)                                                                                            
02/14/05       (H)       W&M RPT CS(W&M) NT 3DP 1AM                                                                             
02/14/05       (H)       DP: MOSES, GRUENBERG, WEYHRAUCH;                                                                       
02/14/05       (H)       AM: WILSON                                                                                             
02/17/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
02/17/05       (H)       Heard & Held                                                                                           
02/17/05       (H)       MINUTE(O&G)                                                                                            
03/15/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
03/15/05       (H)       Moved CSHB 71(O&G) Out of Committee                                                                    
03/15/05       (H)       MINUTE(O&G)                                                                                            
03/18/05       (H)       O&G RPT CS(O&G) NT 1DP 5NR                                                                             
03/18/05       (H)       DP: KOHRING;                                                                                           
03/18/05       (H)       NR:    SAMUELS,    GARDNER,    KERTTULA,                                                               
                         DAHLSTROM, ROKEBERG                                                                                    
04/01/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
04/01/05       (H)       Scheduled But Not Heard                                                                                
04/04/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
04/04/05       (H)       Moved CSHB 71(RES) Out of Committee                                                                    
04/04/05       (H)       MINUTE(RES)                                                                                            
04/05/05       (H)       RES RPT CS(RES) NT 3DP 5NR                                                                             
04/05/05       (H)       DP: ELKINS, RAMRAS, SAMUELS;                                                                           
04/05/05       (H)       NR: OLSON, GATTO, CRAWFORD, SEATON,                                                                    
                         LEDOUX                                                                                                 
04/11/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/11/05       (H)       Heard & Held                                                                                           
04/11/05       (H)       MINUTE(FIN)                                                                                            
04/14/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/14/05       (H)       Bill Postponed To 4/15                                                                                 
04/15/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/15/05       (H)       Moved CSHB  71(FIN) Out of Committee                                                                   
04/15/05       (H)       MINUTE(FIN)                                                                                            
04/18/05       (H)       FIN RPT CS(FIN) NT 5DP 2NR                                                                             
04/18/05       (H)       DP: HAWKER, CROFT, FOSTER, MEYER,                                                                      
                         CHENAULT;                                                                                              
04/18/05       (H)       NR: WEYHRAUCH, KELLY                                                                                   
04/27/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/27/05       (S)       Scheduled But Not Heard                                                                                
04/28/05       (H)       TRANSMITTED TO (S)                                                                                     
04/28/05       (H)       VERSION: CSHB 71(FIN) AM                                                                               
04/29/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/29/05       (S)       <Pending Referral>                                                                                     
05/01/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/01/05       (S)       RES, FIN                                                                                               
05/02/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
05/02/05       (S)       Heard & Held                                                                                           
05/02/05       (S)       MINUTE(RES)                                                                                            
05/04/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: HB 286                                                                                                                  
SHORT TITLE: VALUE OF ROYALTY ON GAS PROD./ TAX CREDIT                                                                          
SPONSOR(s): REPRESENTATIVE(s) SAMUELS                                                                                           
                                                                                                                                
04/26/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/26/05       (H)       O&G, L&C                                                                                               
04/28/05       (H)       O&G AT 5:00 PM CAPITOL 124                                                                             
04/28/05       (H)       Moved Out of Committee                                                                                 
04/28/05       (H)       MINUTE(O&G)                                                                                            
04/29/05       (H)       O&G RPT 5DP                                                                                            
04/29/05       (H)       DP:    KERTTULA,    SAMUELS,    MCGUIRE,                                                               
                         ROKEBERG, KOHRING                                                                                      
04/30/05       (H)       L&C AT 1:00 PM CAPITOL 17                                                                              
04/30/05       (H)       Moved Out of Committee                                                                                 
04/30/05       (H)       MINUTE(L&C)                                                                                            
05/02/05       (H)       L&C RPT 5DP 2NR                                                                                        
05/02/05       (H)       DP: CRAWFORD, LYNN, KOTT, ROKEBERG,                                                                    
                         ANDERSON;                                                                                              
05/02/05       (H)       NR: LEDOUX, GUTTENBERG                                                                                 
05/02/05       (H)       TRANSMITTED TO (S)                                                                                     
05/02/05       (H)       VERSION: HB 286                                                                                        
05/03/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/03/05       (S)       RES, FIN                                                                                               
05/04/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
05/04/05       (S)       Moved SCS HB 286(RES) Out of Committee                                                                 
05/04/05       (S)       MINUTE(RES)                                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ADAM BERG                                                                                                                       
Staff to Representative Carl Moses                                                                                              
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on HB 26 for the sponsor.                                                                       
                                                                                                                                
PAUL SHADURA, President                                                                                                         
Kenai Fishermen's Association                                                                                                   
Kenai AK                                                                                                                        
POSITION STATEMENT: Supported HB 26.                                                                                          
                                                                                                                                
CHRIS CONDOR, Board Member                                                                                                      
Juneau Charter Boat Association                                                                                                 
Juneau AK                                                                                                                       
POSITION STATEMENT: Opposed HB 26.                                                                                            
                                                                                                                                
JACK CADIGAN, Captain                                                                                                           
M/V CADIGAN                                                                                                                     
Juneau AK                                                                                                                       
POSITION STATEMENT: Opposed HB 26.                                                                                            
                                                                                                                                
RICK BIERMAN, Owner                                                                                                             
Whaleside Lodge, Shelter Island                                                                                                 
Juneau AK                                                                                                                       
POSITION STATEMENT: Commented on HB 26.                                                                                       
                                                                                                                                
JERRY MCCUNE                                                                                                                    
United Fishermen of Alaska                                                                                                      
Juneau AK                                                                                                                       
POSITION STATEMENT: Supported HB 26.                                                                                          
                                                                                                                                
BONNIE ROBSON, Oil and Gas Attorney                                                                                             
Legislative Budget and Audit Committee                                                                                          
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on HB 71.                                                                                       
                                                                                                                                
REPRESENTATIVE RALPH SAMUELS                                                                                                    
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on HB 71.                                                                                       
                                                                                                                                
SARAH NEILSON                                                                                                                   
Staff to Representative Samuels                                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Introduced HB 286 for sponsor.                                                                            
                                                                                                                                
JIM POSEY                                                                                                                       
Municipal Light and Power (ML&P)                                                                                                
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supported HB 286.                                                                                         
                                                                                                                                
KATHY GIARD, Chairman                                                                                                           
Regulatory Commission of Alaska (RCA)                                                                                           
701 W Eighth Ave Ste 300                                                                                                        
Anchorage, AK  99501                                                                                                            
POSITION STATEMENT:  Supported HB 286.                                                                                        
                                                                                                                                
MARY JACKSON                                                                                                                    
Staff to Senator Wagoner                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Introduced SCS HB 286(RES).                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting to  order at 3:36:33 PM.  Present were Senators                                                             
Dyson, Seekins and Chair Wagoner.                                                                                               
                                                                                                                                
    CSHB  26(FIN)-SHORT-TERM COM FISHING CREWMEMBER LICENSE                                                                 
                                                                                                                                
CHAIR WAGONER announced CSHB 26(FIN) to be up for consideration.                                                                
                                                                                                                                
3:37:06 PM                                                                                                                    
ADAM  BERG,   staff  to   Representative  Carl   Moses,  sponsor,                                                               
explained that  CSHB 26(FIN) allows  the purchase of  a seven-day                                                               
commercial fishing crew  member license for $30.  The only option                                                               
available now  for crew  members is an  annual license,  which is                                                               
$60 for residents and $180 for non-residents.                                                                                   
                                                                                                                                
The reason for introducing the bill  is to try to give commercial                                                               
fishermen  more  opportunities  to  earn  a  living  by  charging                                                               
tourists  to  participate  hands-on in  the  commercial  fishery.                                                               
Right  now  they  can  only observe.  Secondly,  it  would  allow                                                               
commercial   fishermen  temporary   short-term   help,  such   as                                                               
relatives and friends, at a lower cost.                                                                                         
                                                                                                                                
3:38:46 PM                                                                                                                    
SENATOR ELTON joined the committee.                                                                                             
                                                                                                                                
3:39:40 PM                                                                                                                    
SENATOR GUESS joined the committee.                                                                                             
                                                                                                                                
SENATOR  DYSON  said  the  Coast Guard  Auxiliary  asked  him  if                                                               
conformity  with the  Code of  Federal Regulations  (CFR) 46  had                                                               
been discussed.                                                                                                                 
                                                                                                                                
MR.  BERG   replied  that  the  Juneau   Charter  Boat  Operators                                                               
Association asked that  question of Sue Jorgenson  with the Coast                                                               
Guard,  and  she   responded  if  an  individual   pays  for  the                                                               
opportunity  to  go out  fishing  on  a commercial  vessel,  that                                                               
vessel is  then considered a  vessel for  hire and would  have to                                                               
follow the  same Coast  Guard rules  that charter  boat operators                                                               
follow now.                                                                                                                     
                                                                                                                                
SENATOR DYSON  asked if  this isn't a  backdoor way  around Coast                                                               
Guard licensing procedure.                                                                                                      
                                                                                                                                
MR. BERG replied that is correct.                                                                                               
                                                                                                                                
3:41:36 PM                                                                                                                    
SENATOR ELTON asked  if this bill would have  any implications on                                                               
the Fishermen's Fund.                                                                                                           
                                                                                                                                
SENATOR STEDMAN joined the committee.                                                                                           
                                                                                                                                
MR.  BERG  replied that  an  amendment  was offered  saying  that                                                               
short-term crewmembers  aren't allowed any type  of compensation.                                                               
Currently, 39  percent of the  first $60  of any license  goes to                                                               
the Fishermen's Fund. That doesn't  change under this bill, which                                                               
has an  indeterminate fiscal  note from  the Department  of Labor                                                               
and Workforce Development.                                                                                                      
                                                                                                                                
3:43:35 PM                                                                                                                    
SENATOR  STEDMAN asked  if the  commercial  fishermen would  fall                                                               
into the category of six-pack license requirements.                                                                             
                                                                                                                                
MR.  BERG  replied  that  they  would have  to  have  a  six-pack                                                               
license, be enrolled  in the random drug testing  program and the                                                               
vessel  would have  to be  documented  for coastwise  as well  as                                                               
fishery type 1  personal floatation devices - in  addition to the                                                               
survival suits that are required on commercial boats.                                                                           
                                                                                                                                
3:44:38 PM                                                                                                                    
PAUL   SHADURA,   President,   Kenai   Fishermen's   Association,                                                               
supported HB  26. Its approach  is reasonable  and adds a  lot of                                                               
dynamics  to  the  commercial  fishing   industry.  It  offers  a                                                               
survivalist type of  experience for those who  are interested and                                                               
would probably  not affect any other  users in any way.  A lot of                                                               
people have family  members come up and visit  them and currently                                                               
hiring them for a couple of days is prohibitively expensive.                                                                    
                                                                                                                                
3:46:37 PM                                                                                                                    
CHRIS  CONDOR, Board  Member,  Juneau  Charter Boat  Association,                                                               
opposed HB 26,  because it has all kinds of  holes and dangers in                                                               
it for tourists, especially.                                                                                                    
                                                                                                                                
     You're going  to put  people who have  never been  on a                                                                    
     boat out in these type  of seas. Despite all the safety                                                                    
     precautions  a charter  boat  has, they're  [commercial                                                                    
     boats] in  much more dangerous situations....  In those                                                                    
     seas  something   is  going  to  happen....   In  these                                                                    
     disclaimers  when  they   talk  about  these  releases,                                                                    
     they're  not worth  the paper  they're written  on when                                                                    
     you talk to a lawyer about them....                                                                                        
                                                                                                                                
     If someone gets  into a problem out  there, we're going                                                                    
     to have a  real bad PR problem about that.  You can see                                                                    
     it any time...we  lose a tourist. It's real  bad PR for                                                                    
     Alaska.                                                                                                                    
                                                                                                                                
Furthermore,  he  said the  charter  boat  license and  insurance                                                               
requirements would be prohibitive.  Another consideration was how                                                               
enforcement  would be  conducted  and he  surmised  that a  Coast                                                               
Guard person  would have to  board each  vessel to check  out the                                                               
people  on it.  He also  thought it  was an  unfair bill  for the                                                               
charter fleet saying:                                                                                                           
                                                                                                                                
     If  you  want  to  be  a  commercial  fisherman,  be  a                                                                    
     commercial  fisherman.  If you  want  to  be a  charter                                                                    
     fisherman, be a charter boat  fisherman. If you want to                                                                    
     do  both,  that's fine  too,  but  you  have to  do  it                                                                    
     separately, not  combined. I can't  sell my  catch. The                                                                    
     commercial fleet  would never allow me  to do something                                                                    
     like that. It's just not fair.                                                                                             
                                                                                                                                
3:50:41 PM                                                                                                                    
JACK CADIGAN,  Captain, M/V CADIGAN, suggested  amending the bill                                                               
to  address   licensing  short-term  people  who   would  not  be                                                               
compensated on commercial boats.  Because of the unusual activity                                                               
of taking  tourists out, commercial  boats should be  required to                                                               
display  an   appropriate  decal,  which  would   be  similar  or                                                               
identical to that of charter  boat operators, so that enforcement                                                               
doesn't necessarily have to board the vessels.                                                                                  
                                                                                                                                
MR. CADIGAN pointed  out a the further issue of  whether the fish                                                               
would  be counted  as sport  or commercial  fish allocations  and                                                               
whether the tourist passengers would  be allowed to keep any fish                                                               
caught without having to purchase them  via a fish ticket. In any                                                               
case, he  asked how the  catch would be identified  and allocated                                                               
under current regulations.                                                                                                      
                                                                                                                                
He suggested  requiring vessels operating under  the authority of                                                               
this legislation to comply with  all applicable regulations under                                                               
CFR  and  with  all  Alaska  licensing  requirements  apropos  to                                                               
sportfishing  guides and  sportfishing  business licenses  unless                                                               
non of  the personnel who  are acting  as crewmembers are  in any                                                               
sort of a paid status.                                                                                                          
                                                                                                                                
3:55:05 PM                                                                                                                    
RICK  BIERMAN, Whaleside  Lodge, Shelter  Island, said  last year                                                               
the Legislature  passed comprehensive  regulations on  the guided                                                               
sport  fishing  industry  regarding vessel  safety  and  operator                                                               
responsibility.  Now  it  is  proposing to  put  his  clients  on                                                               
commercial fishing  boats without  the same  safeguards contained                                                               
in those regulations. He said a  commercial fishing boat is a far                                                               
more dangerous environment  than a charter boat.  The Coast Guard                                                               
also  stated  that  enforcement isn't  practical  unless  vessels                                                               
somehow indicate they  have passengers for hire  and he suggested                                                               
requiring vessels  to carry a  prominent sticker  that identifies                                                               
them as carrying tourists.                                                                                                      
                                                                                                                                
3:57:36 PM                                                                                                                    
He was  also concerned that since  this bill creates a  whole new                                                               
fishing experience in Alaska, his  clients will now have a choice                                                               
to come  to his lodge  and be restricted  to three king  salmon a                                                               
year,  bag, possession  and  gear  limits or  they  could rent  a                                                               
commercial vessel and catch as many  fish as they want. "There is                                                               
nothing in  this bill that says  the operator of the  vessels can                                                               
include those  fish in the  price of the adventure."  He insisted                                                               
that  the  tourists should  have  to  buy  the fish  they  catch;                                                               
otherwise  they would  be  circumventing  sport regulations  that                                                               
happen to be good regulations.                                                                                                  
                                                                                                                                
3:59:11 PM                                                                                                                    
Further,  he said  the  people  who use  this  license should  be                                                               
required to prove they have liability insurance.                                                                                
                                                                                                                                
3:59:43 PM                                                                                                                    
SENATOR DYSON asked who from  the marine insurance industry could                                                               
comment  on  lines of  liability  protection  for the  short-term                                                               
people.                                                                                                                         
                                                                                                                                
MR. BIERMAN  replied that he  didn't know of anyone  locally, but                                                               
Charter Lakes Insurance Company in  St. Paul writes 50 percent of                                                               
the liability for charter boats.                                                                                                
                                                                                                                                
CHAIR  WAGONER commented  that he  looked at  this bill  from the                                                               
commercial point  of view  and ran  away from  it because  of the                                                               
liability and insurance he would be required to have.                                                                           
                                                                                                                                
4:01:21 PM                                                                                                                    
JERRY  MCCUNE,  United  Fishermen  of Alaska,  supported  HB  26.                                                               
However  there were  some misconceptions  he  wanted to  clarify.                                                               
Commercial fishermen  already need to  have most things  on board                                                               
already and are required to  carry liability between $300,000 and                                                               
$1 million  for crew.  Some of his  members have  gillnetters and                                                               
they come to town, take their  net off, take two or three clients                                                               
out and already  have the same equipment a charter  boat does. He                                                               
did agree that  commercial vessels being used  for charter should                                                               
be readily identifiable as such.                                                                                                
                                                                                                                                
4:04:40 PM                                                                                                                    
SENATOR ELTON  asked how  he would  address the  allocation issue                                                               
for guests.                                                                                                                     
                                                                                                                                
MR. MCCUNE answered:                                                                                                            
                                                                                                                                
     If you  were a  commercial vessel  and you  were taking                                                                    
     people  out  for  the commercial  experience,  which  I                                                                    
     haven't  a whole  lot  of  this going  on  - myself,  I                                                                    
     haven't had  any requests  for this.  You're commercial                                                                    
     fishing;  you've   got  to  have  all   the  commercial                                                                    
     permits, all the  other charter stuff to  go along with                                                                    
     it.  You've got  to  have your  card;  they gotta  have                                                                    
     their  crew  licenses  and  that would  go  on  a  fish                                                                    
     ticket....  You  deliver,  you've  gotta  have  a  fish                                                                    
     ticket. It's just like a commercial fishing boat.                                                                          
                                                                                                                                
     Now if you take some of  the fish and give them to your                                                                    
     clients, which  is perfectly legal  also, you  could do                                                                    
     that. But any fish delivered to  a tender has to have a                                                                    
     fish ticket  and it's going  to go down  as commercial,                                                                    
     not sport.                                                                                                                 
                                                                                                                                
CHAIR  WAGONER related  that in  his  fishery halibut  has to  be                                                               
marked as "retained catch" and must come off your IFQ.                                                                          
                                                                                                                                
SENATOR ELTON  remarked that tourists  are limited to  three king                                                               
salmon per year, but a person  on a commercial boat could take 10                                                               
kings, for instance, have them smoked and take them home.                                                                       
                                                                                                                                
MR.  MCCUNE replied  that as  a commercial  fisherman, he  has to                                                               
report all the kings he catches,  even the ones he's taking home,                                                               
so ADF&G has an accurate count of fish.                                                                                         
                                                                                                                                
SENATOR ELTON repeated  that his point is that a  person hiring a                                                               
charter boat  is limited  to taking three  kings for  the season,                                                               
but if he goes  out on a commercial troller he  could and take 10                                                               
kings.                                                                                                                          
                                                                                                                                
4:10:22 PM                                                                                                                    
CHAIR  WAGONER said  he understands  this is  to give  people the                                                               
experience  of being  on a  commercial boat  and he,  personally,                                                               
doesn't  give his  crew  king  salmon or  halibut.  If this  goes                                                               
through, that  is an allocation issue  and should be taken  up by                                                               
the Board of Fisheries.                                                                                                         
                                                                                                                                
4:11:11 PM                                                                                                                    
SENATOR  ELTON responded  that a  person may  expect to  get some                                                               
fish out of  the commercial experience. It could even  be used as                                                               
a marketing tool.                                                                                                               
                                                                                                                                
CHAIR WAGONER acknowledged that would  be an issue, but the Board                                                               
of Fisheries was the proper forum to set policy.                                                                                
                                                                                                                                
     I think if  we do anything, if this  bill goes forward,                                                                    
     I think we  want to make the intent  of the Legislature                                                                    
     - this  is not a  meat fishery.  We are not  creating a                                                                    
     meat fishery. It's real dangerous when we do that.                                                                         
                                                                                                                                
4:12:43 PM                                                                                                                    
CHAIR WAGONER said he would hold  the bill and get input from the                                                               
insurance industry and the Board of Fisheries.                                                                                  
                                                                                                                                
   CSHB  71(FIN)am-OIL& GAS EXPLORATION CREDIT & LEASE TERMS                                                                
                                                                                                                                
CHAIR  WAGONER  announced   CSHB  71  (FIN)  am  to   be  up  for                                                               
consideration  and that  he  had  asked Ms.  Robson  in the  last                                                               
meeting to provide more information for the record.                                                                             
                                                                                                                                
BONNIE  ROBSON,  oil  and  gas attorney  and  consultant  to  the                                                               
Legislative Budget  and Audit Committee  on gas  pipeline issues,                                                               
said she wanted  to cover six different points with  regard to HB                                                               
71.                                                                                                                             
                                                                                                                                
4:15:05 PM                                                                                                                    
     First, and very importantly, I  want to talk about what                                                                    
     we  didn't hear  on  Monday. Second,  I  would like  to                                                                    
     correct some  incorrect statements or  impressions left                                                                    
     on Monday.                                                                                                                 
                                                                                                                                
     Third, I heard concern over  what is the right standard                                                                    
     for 'reasonable  profitability' on  Monday and  I think                                                                    
     we should discuss that as  well. Fourth, there was some                                                                    
     dispute about how  the duty would be  enforced, how the                                                                    
     duty  to  develop  and   market  gas  when  'reasonably                                                                    
     profitable'   would  be   enforced.   Fifth,  I   think                                                                    
     strategically,  we  need to  talk  about  the time  for                                                                    
     invoking the  duty and what  that means for  you today.                                                                    
     And,  sixth,  discuss  some options  available  to  the                                                                    
     committee at this point in time.                                                                                           
                                                                                                                                
     First, what  did we  not hear on  Monday. If  you think                                                                    
     back  a couple  of weeks  ago, Spencer  Hosie testified                                                                    
     before a  combined committee,  LB&A and  this committee                                                                    
     and he testified  that there was in oil  and gas leases                                                                    
     an obligation  to develop and  market oil and  gas when                                                                    
     reasonably profitable  to do so.  He was before  you on                                                                    
     behalf of the Administration and  you did not hear from                                                                    
     lessees at  that time. He  was emphatic that  there is,                                                                    
     in fact, a duty or  an obligation to develop and market                                                                    
     gas when reasonably profitable to do so.                                                                                   
                                                                                                                                
     On Monday,  you heard  from the  other side.  You heard                                                                    
     from lessees, you  heard from industry representatives.                                                                    
     And I did not hear anyone  deny that the duty exists. I                                                                    
     think   I  listened   carefully.   Nobody  denied   the                                                                    
     obligation  was there;  nobody  suggested that  lessees                                                                    
     can  warehouse  leases   long-term  without  having  an                                                                    
     obligation to develop and market.  They did dispute how                                                                    
     you would go  about enforcing that duty  and what would                                                                    
     be the standard for  measuring 'reasonable profit,' but                                                                    
     nobody disputed that the obligation was there.                                                                             
                                                                                                                                
     The second thing that you did  not hear on Monday is no                                                                    
     one disputed  that seven years  was a  reasonable time-                                                                    
     clock  for getting  the gas  to market  once there  had                                                                    
     been  a  determination  that  it  would  be  reasonably                                                                    
     profitable  to  do  so.  As  we  mentioned  on  Monday,                                                                    
     particularly for the State of  Alaska and for the other                                                                    
     project  participants, time  is  money. It's  a lot  of                                                                    
     money. At current gas prices,  every year delay of this                                                                    
     pipeline    project   costs    the   state    and   its                                                                    
     municipalities  on  the order  of  $2  billion -  rough                                                                    
     order of  magnitude $150 million  per month for  a year                                                                    
     delay in this project.                                                                                                     
                                                                                                                                
     This  bill, HB  71,  includes a  seven-year time  clock                                                                    
     once  there has  been  a determination  that a  project                                                                    
     would  be   reasonably  profitable  to  get   that  gas                                                                    
     developed  and to  market and  nobody disputed  that on                                                                    
     Monday - that seven years was a reasonable timeframe.                                                                      
                                                                                                                                
     Next   I'd   like   to  move   on   to   correct   some                                                                    
     misimpressions, I think, created  on Monday and I don't                                                                    
     mean   to  suggest   that  these   misimpressions  were                                                                    
     intentional. I think sometimes the  person at the table                                                                    
     did not  have a full  familiarity with some of  the oil                                                                    
     and gas  leasing history of  this state and  that might                                                                    
     be the source  of some misimpressions. But,  as I said,                                                                    
     there was no dispute  about whether the obligation, the                                                                    
     duty  to  develop  and market  exists  when  reasonably                                                                    
     profitable and  that exists currently under  leases and                                                                    
     unit agreements.                                                                                                           
                                                                                                                                
     It's  important  to know  the  origins  of the  state's                                                                    
     leases and  unit agreements. There was  some suggestion                                                                    
     that perhaps these were contracts  of adhesion. I don't                                                                    
     believe that's so.  With regard to the  state's oil and                                                                    
     gas  lease form,  it used  to be  in regulations  and I                                                                    
     think all of  you know that for anything  to be adopted                                                                    
     as  a  regulation, it  must  go  through a  public  and                                                                    
     industry  comment  period.  So,  that  lease  form  was                                                                    
     developed through  a public  process and  initially put                                                                    
     into regulations.  It's no  longer in  regulations, but                                                                    
     that's its origin, so there was public comment.                                                                            
                                                                                                                                
4:18:43 PM                                                                                                                    
SENATOR ELTON asked what a contract of adhesion is.                                                                             
                                                                                                                                
MS. ROBSON explained:                                                                                                           
                                                                                                                                
     There  are  times  when because  of  uneven  bargaining                                                                    
     power  between two  parties to  a  contract, one  party                                                                    
     might  actually be  relieved of  its obligations  under                                                                    
     the contract -  because it was a  contract of adhesion,                                                                    
     you  didn't  have  any   choice.  Here,  because  we're                                                                    
     talking  about  the State  of  Alaska  and the  largest                                                                    
     international petroleum  companies, so there  isn't the                                                                    
     disequilibrium in bargaining power.  But there was some                                                                    
     concern these were 'take it  or leave it' contracts and                                                                    
     an implication  that maybe that should  bear on whether                                                                    
     the duty to  develop and market should  be enforced and                                                                    
     how.                                                                                                                       
                                                                                                                                
SENATOR ELTON thanked her for the clarification.                                                                                
                                                                                                                                
MS. ROBSON continued:                                                                                                           
                                                                                                                                
     So,  the lease  form adopted  through a  public process                                                                    
     and then  if we  turn and think  about how  the state's                                                                    
     oil and gas  leases are put out to bid,  it's through a                                                                    
     competitive  bid  process.  If   you  think  about  the                                                                    
     competitive bidding process,  typically there's one bid                                                                    
     variable price,  often the bonus  bid. You can  try for                                                                    
     two  bid variables;  that  complicates things.  Usually                                                                    
     any contract by competitive bid  - all the terms of the                                                                    
     contract are  spelled out and there's  one bid variable                                                                    
     - something  like prices. So,  I don't think  that this                                                                    
     body wants  to think  of every  competitive bid  in the                                                                    
     oil  and  gas  industry  and in  the  United  State  of                                                                    
     America  as a  contract of  adhesion or  a 'take  it or                                                                    
     leave it'  contract. That's  simply the  process that's                                                                    
     used  in  the  competitive   process.  That's  how  our                                                                    
     state's   oil  and   gas  leases   are  by   and  large                                                                    
     distributed.                                                                                                               
                                                                                                                                
4:20:24 PM                                                                                                                    
SENATOR  SEEKINS   argued  that   the  process  still   fits  the                                                               
definition of a contract of adhesion.                                                                                           
                                                                                                                                
MS. ROBSON disagreed  and said that contracts  of adhesion happen                                                               
most  often where  you  have two  parties  of unequal  bargaining                                                               
strength.                                                                                                                       
                                                                                                                                
SENATOR SEEKINS  said it's generally applied  to situations where                                                               
one party would have no  meaningful chance to negotiate the terms                                                               
of a contract.                                                                                                                  
                                                                                                                                
MS. ROBSON responded: "Actually  that's not correct. Specifically                                                               
with regard  to the  obligation we're talking  about here  in the                                                               
oil  and gas  lease forms  there's  some language  and we  didn't                                                               
cover it Monday and I think  it's important that we talk about it                                                               
today. In paragraph 20 entitled "Diligence" it reads:                                                                           
                                                                                                                                
4:22:11 PM                                                                                                                    
     'Diligence   -   Lessees  shall   exercise   reasonable                                                                    
     diligence in  producing and shall abide  by and conform                                                                    
     to  regulations  of  lessor   related  to  the  matters                                                                    
     covered by  this paragraph in  effect on  the effective                                                                    
     date  hereof   or  herein  after   in  effect   if  not                                                                    
     inconsistent  with  any   specific  provision  of  this                                                                    
     lease.'                                                                                                                    
                                                                                                                                
     There  is  elsewhere  in the  lease  a  provision  that                                                                    
     generally only  the regulations in  effect at  the date                                                                    
     the lease was issued  governed the operations under the                                                                    
     lease,  but  this  specific paragraph  with  regard  to                                                                    
     diligence and the obligation  to diligently produce oil                                                                    
     and  gas   allows  the  lessor  to   proceed  to  adopt                                                                    
     regulations thereafter  covering this subject  matter -                                                                    
     regulations   such  as   how  you   define  'reasonable                                                                    
     profitability.'                                                                                                            
                                                                                                                                
4:23:06 PM                                                                                                                    
SENATOR SEEKINS asked if there is an integration clause in                                                                      
lease.                                                                                                                          
                                                                                                                                
MS. ROBSON replied that that such a clause would be conditioned                                                                 
by the specific language on diligence in paragraph 20.                                                                          
                                                                                                                                
4:23:56 PM                                                                                                                    
MS. ROBSON said with regard to unit agreements:                                                                                 
                                                                                                                                
     I think with unit  agreements, particularly for Prudhoe                                                                    
     Bay and the Pt. Thompson  unit, are instrumental to the                                                                    
     enforcement  of the  duty in  this  instance. The  unit                                                                    
     agreements  were  negotiated  and there  are  reams  of                                                                    
     paper now  in archives that  were generated as  part of                                                                    
     negotiating the  specific terms of the  unit agreements                                                                    
     for Prudhoe Bay and Pt.  Thompson. So, in any case, you                                                                    
     had the state sitting down  with the lessees at Prudhoe                                                                    
     Bay  and  Pt.  Thompson  and  negotiating  those  terms                                                                    
     including the  language in  those unit  agreements that                                                                    
     allows the Department of Natural  Resource from time to                                                                    
     time  to  alter or  modify  the  quantity and  rate  of                                                                    
     production from  the unit area.  So, you do  have terms                                                                    
     in both the leases and  the unit agreements specific to                                                                    
     this obligation that  gives to the State  of Alaska, as                                                                    
     lessor,  to the  DNR,  the ability  to set  obligations                                                                    
     regarding  production  and  to  alter  and  modify  the                                                                    
     quantity and rate of production.                                                                                           
                                                                                                                                
     Another area, I  think on Monday, where  there was some                                                                    
     incorrect   impressions   left    is   what   are   the                                                                    
     consequences of  this obligation,  the duty  to develop                                                                    
     and  market gas  when reasonably  profitable to  do so.                                                                    
     There was  a picture painted that  this legislation was                                                                    
     intended to  force lessees to  pay $20 billion  for new                                                                    
     investment or  lose their interest at  Prudhoe Bay. And                                                                    
     that's  a   dramatic  statement.  I  believe   it's  an                                                                    
     overstatement. If  we look at  the consequences  of the                                                                    
     obligation, there  at least  three different  ways that                                                                    
     you  can  comply with  the  obligation  to develop  and                                                                    
     market   Prudhoe  Bay   and  Pt.   Thompson  gas   when                                                                    
     reasonably profitable to do so.                                                                                            
                                                                                                                                
     First of  all, you can  sell the  gas in the  field and                                                                    
     you  can  leave it  to  somebody  else to  spend  their                                                                    
     capital  to  build  the  new  gas  treatment  plant  at                                                                    
     Prudhoe  Bay   for  gas  processing  and   to  build  a                                                                    
     pipeline. So, if  there is an offer to  purchase gas at                                                                    
     Prudhoe  Bay and  Pt. Thompson,  that offer  includes a                                                                    
     reasonable profit  to the lessees of  those units. Then                                                                    
     they  can  comply  with  their  obligations  under  the                                                                    
     leases and  the unit  agreements simply by  selling the                                                                    
     gas.  That's  a  low risk  operation,  particularly  at                                                                    
     Prudhoe Bay where they're producing  over 8 bcf per day                                                                    
     right now  and they are  paying to  put in back  in the                                                                    
     ground. If  somebody is there  offering to pay  to take                                                                    
     that  gas  and  put  it   through  their  own  new  gas                                                                    
     treatment plant  and their own  pipeline and  the price                                                                    
     offered includes a reasonable  profit, then that is one                                                                    
     method of compliance.                                                                                                      
                                                                                                                                
     The second method of compliance  is if somebody else is                                                                    
     willing to spend their capital  to build this pipeline,                                                                    
     the lessees  could ship their  gas on the  pipeline and                                                                    
     then they would be in  the position to capture the high                                                                    
     side. When  gas prices go  high, they would be  there -                                                                    
     of  course  having  the  obligation   to  pay  for  the                                                                    
     pipeline  transportation.  That's  a second  method  of                                                                    
     compliance.                                                                                                                
                                                                                                                                
     A third method  - they could choose to build  a new gas                                                                    
     treatment plant  and the pipeline themselves.  So three                                                                    
     different  ways to  comply  with  the obligation  after                                                                    
     there's been a determination  that there's a reasonable                                                                    
     profit to  be made from developing  and marketing North                                                                    
     Slope gas.                                                                                                                 
                                                                                                                                
4:27:59 PM                                                                                                                    
     If  the  lessees decide  not  to  purchase gas  when  a                                                                    
     reasonable offer is  made and decide not  to ship their                                                                    
     gas  on somebody  else's  pipeline  when another  party                                                                    
     offers to build  that pipeline and decide  not to build                                                                    
     a pipeline, all when  there's been a determination that                                                                    
     it would  be reasonably  profitable to  do so,  so they                                                                    
     will not be  in compliance with their  lease. They will                                                                    
     be  in  breach.  And  the  remedy -  I  think  it's  an                                                                    
     overstatement  to  say  they're  at  serious  risk  for                                                                    
     losing  all  of their  interest  at  Prudhoe Bay.  More                                                                    
     probably, what  I see happening  is certainly  under HB                                                                    
     71  with the  seven-year  time clock,  if  there was  a                                                                    
     determination that there was  a reasonable profit to be                                                                    
     made,  seven years  came  and went  and  they were  not                                                                    
     marketing their  gas, they may  be liable to  the State                                                                    
     of Alaska  for royalties as  if they had  developed and                                                                    
     marketed their gas.                                                                                                        
                                                                                                                                
     Other possible  remedies -  at Prudhoe  Bay potentially                                                                    
     severing  the  oil  interests from  the  gas  interests                                                                    
     leaving  the oil  interests with  the current  lessees,                                                                    
     possibly leaving some of the  gas interest because some                                                                    
     of that gas  is marketed as NGLs blended  in with crude                                                                    
     and  for  local  use.  But   having  some  of  the  gas                                                                    
     interests severed and returned to the state.                                                                               
                                                                                                                                
4:29:02 PM                                                                                                                    
     Also, at  Pt. Thompson is  a particular case.  You have                                                                    
     to realize some of those  leases are more than 40 years                                                                    
     old and  Pt. Thompson  is a  world-class field.  It has                                                                    
     not  been   developed.  There's  not  even   the  first                                                                    
     development well there now and  if the lessees have the                                                                    
     opportunity  after a  determination  that  it would  be                                                                    
     reasonably  profitable to  market that  gas, they  have                                                                    
     the opportunity to sell it to  a third party or ship it                                                                    
     on  somebody  else's  pipeline or  build  the  pipeline                                                                    
     themselves  and   they  don't   take  it,  it   may  be                                                                    
     appropriate for the state to  seek the remedy of return                                                                    
     of those  leases so  that the  state could  relet those                                                                    
     leases to a  party who would make it a  priority to get                                                                    
     that gas to market.                                                                                                        
                                                                                                                                
4:29:52 PM                                                                                                                    
     There  was  concern  expressed from  several  different                                                                    
     sides  on Monday  about  whether  the language  written                                                                    
     into HB  71 provided the right  standard for reasonable                                                                    
     profitability  and if  you'll recall  there was  a dual                                                                    
     part standard  for the  pipeline piece  of it,  for the                                                                    
     regulated piece. Built  into the statute was  a rate of                                                                    
     return equal  to or higher  than FERC would  allow. For                                                                    
     the  unregulated  production  operations, the  rate  of                                                                    
     return  talked about  was a  10-year simple  average of                                                                    
     the  return  on  capital  employed   for  oil  and  gas                                                                    
     companies, discretioned  with DNR  as to what  would be                                                                    
     the  group  of oil  and  gas  companies used,  but  our                                                                    
     example used  the four largest  international petroleum                                                                    
     companies and  the three largest Alaska  companies. And                                                                    
     right now if you look  at the previous 10-year average,                                                                    
     you  get to  a 14  percent return  on capital  employed                                                                    
     that  is return  on all  forms  of capital  - debt  and                                                                    
     equity. So  that if this  pipeline project  is financed                                                                    
     80 percent debt and 20  percent equity as is envisioned                                                                    
     with  the federal  loan guarantee,  that the  return on                                                                    
     equity  could  be  as  high as  46  percent  under  the                                                                    
     language  in this  bill. And  there  was some  question                                                                    
     about whether that's a reasonable  standard. I tell you                                                                    
     quite frankly  I would have  some concerns  about that,                                                                    
     but for some information  that unfortunately I'm not in                                                                    
     a  position to  share with  you today,  because of  the                                                                    
     confidentiality requirements.                                                                                              
                                                                                                                                
     But the  important point today  is that there is  not a                                                                    
     single standard or only one  standard for what could be                                                                    
     reasonable.  There are  a  number  of possibilities  of                                                                    
     what  could  be  used  as  a  standard  for  reasonable                                                                    
     profit.  There have  been  suggestions,  in fact,  from                                                                    
     consultants we  are using with  regard to  gas pipeline                                                                    
     issues that  the cost of  capital - different  from the                                                                    
     rate of  return on capital  employed - but the  cost of                                                                    
     capital could  be one measure.  You could also  look at                                                                    
     the  return on  equity as  another measure  and we  did                                                                    
     hear   from  industry   that   perhaps   it  would   be                                                                    
     appropriate to look to venture  capital. There was some                                                                    
     discussion about venture capital  earning in the low 20                                                                    
     percents.  The  thing  to think  about  there  is  that                                                                    
     venture  capital is  100 percent  equity.  There is  no                                                                    
     borrowing; there  is no  cheap capital  in the  form of                                                                    
     debt  when you're  talking about  venture capital.  So,                                                                    
     actually  the suggestion  from AOGA  or the  discussion                                                                    
     about 20s,  low 20s rate  of return indicative  of what                                                                    
     is appropriate  for venture capital and  maybe for this                                                                    
     project,  could be  a  lower rate  than  what could  be                                                                    
     allowed under this statute.                                                                                                
                                                                                                                                
     This statute, as I mentioned, could  go as high as a 46                                                                    
     percent return on equity. Compare  that to your low 20s                                                                    
     percent  return on  equity  return  on venture  capital                                                                    
     that  was  discussed  here  on   Monday.  I  think  the                                                                    
     important  point  to  recognize   here  today  is  that                                                                    
     there's not going  to be agreement within  this room by                                                                    
     all  parties on  what the  appropriate standard  is for                                                                    
     measuring reasonable  profitability and that may  be an                                                                    
     issue that  if you don't  chose to resolve  today could                                                                    
     be  looked at  in the  Interim; it  could be  looked at                                                                    
     next session.  It is  an important  issue not  only for                                                                    
     this  bill, but  it's also  an important  issue as  you                                                                    
     begin  to think  about  gas pipeline  issues under  the                                                                    
     Stranded  Gas Act  and any  proposal that  may come  to                                                                    
     you.                                                                                                                       
                                                                                                                                
4:33:42 PM                                                                                                                    
     There was  some industry suggestion on  Monday that the                                                                    
     free  market should  be the  standard -  that basically                                                                    
     you should  leave it to  the lessees to decide  what is                                                                    
     the rate  of return  appropriate. Again, that  means in                                                                    
     effect  there is  no duty  to develop  and market  when                                                                    
     reasonably   profitable.  If   you   leave  a   lessees                                                                    
     obligation to the  lessee to decide and  enforce, it is                                                                    
     effectively no obligation at all.                                                                                          
                                                                                                                                
4:34:19 PM                                                                                                                    
     Another  question that  came up  and  was discussed  on                                                                    
     Monday was just how is the  duty enforced - the duty to                                                                    
     develop and market when reasonably profitable.                                                                             
                                                                                                                                
     To  think the  lessees came  in here  and urged  in the                                                                    
     first  instance it  should be  the court  system making                                                                    
     the determination whereas there  was discussion of this                                                                    
     bill   providing   for   DNR  to   make   the   initial                                                                    
     determination.  And   there  is   a  reason   for  that                                                                    
     difference of perspective. The  lessees, I think, would                                                                    
     see certain  benefits in having  the court  system make                                                                    
     the  initial  determination.  It   forces  DNR  or  the                                                                    
     Administration to  be the  one to file  suit and  it is                                                                    
     not easy  or undertaken lightly  in this state  for the                                                                    
     Administration  to sue  big oil.  It's an  advantage if                                                                    
     industry forces  the state  to be the  one to  take the                                                                    
     matter to the courthouse.                                                                                                  
                                                                                                                                
     The second  advantage industry may  see in  leaving the                                                                    
     trial   court  as   the  one   to   make  the   initial                                                                    
     determination  is  that if  there  is  no DNR  decision                                                                    
     preceding going  to court, then  there is  no deference                                                                    
     accorded the DNR decision. And  the third thing is that                                                                    
     it may  provide an opportunity for  lessees to withhold                                                                    
     information until such time as you get into court.                                                                         
                                                                                                                                
4:36:32 PM                                                                                                                    
     As we discussed  before, we think under  the status quo                                                                    
     that, in fact, the decision is  first to be made by DNR                                                                    
     whether  you're  looking  at the  leases  or  the  unit                                                                    
     agreements. Earlier today we  talked about the language                                                                    
     in the lease agreements -  in the paragraph 20 specific                                                                    
     to  diligence -  saying  that  the Administration,  the                                                                    
     Department  of Natural  Resources, had  the ability  to                                                                    
     adopt  regulations on  the subject  matters covered  in                                                                    
     the paragraph  on diligence after  the adoption  of the                                                                    
     lease and the lessees would  be bound by that. So, that                                                                    
     the Administration  could, in fact, adopt  standards on                                                                    
     reasonable    profitability    in    accordance    with                                                                    
     preexisting lease terms and make  a determination as to                                                                    
     whether those standards had been met.                                                                                      
                                                                                                                                
     Same thing  with the unit  agreements where  after hard                                                                    
     negotiations,  the  lessees  gave DNR  the  ability  to                                                                    
     alter  or  modify  from  time   to  time  the  rate  of                                                                    
     production from the unit areas.                                                                                            
                                                                                                                                
     The advantages, of course,  from the Administration and                                                                    
     the State  of Alaska's perspective of  having DNR being                                                                    
     the initial decision-maker is  that if industry doesn't                                                                    
     like the decision issued by  DNR, they have to take the                                                                    
     matter  to   court.  Also,  DNR's  decision   would  be                                                                    
     entitled  to  some  level of  deference  in  the  court                                                                    
     system as  to some issues  and finally, there  would be                                                                    
     the ability  and, in fact,  the incentive  for industry                                                                    
     to provide  information to  DNR when  it is  making its                                                                    
     decision  pre-court and  so  information actually  gets                                                                    
     exchanged  at  an earlier  point  in  time and  informs                                                                    
     DNR's decision-making.                                                                                                     
                                                                                                                                
     In any  case, HB 71  did not  do anything to  alter the                                                                    
     status  quo as  to who  is the  primary decision-maker,                                                                    
     the  first decision-maker  on this  duty.  There is  no                                                                    
     language in  there that  is intended  to shift.  So, if                                                                    
     the  debate remains  open, if  you're unpersuaded  that                                                                    
     DNR   is  to   be  the   initial  decision-maker,   the                                                                    
     legislation  did  not  intend   to  alter  the  current                                                                    
     situation and, if  in fact, the trial courts  are to be                                                                    
     the initial  decision-maker, that would not  be changed                                                                    
     by HB 71.                                                                                                                  
                                                                                                                                
4:38:10 PM                                                                                                                    
     Two more points  - strategically what is  the best time                                                                    
     for  invoking  the  duty to  develop  and  market  when                                                                    
     reasonably profitable  to do  so? This is  important to                                                                    
     you today because  it may frame the  time period within                                                                    
     which you  want to act on  this matter. And I  think on                                                                    
     Monday you heard some people  say, 'Not now, because of                                                                    
     Stranded Gas Act negotiations.  Don't upset the balance                                                                    
     of  those negotiations.  Worry about  this later.'  And                                                                    
     you also  heard some people  say, 'Now would be  a good                                                                    
     time.'  People  who  know  what's  going  on  in  those                                                                    
     negotiations thought  it would be an  appropriate time,                                                                    
     but let's  look practically  at how  the duty  would be                                                                    
     invoked  and enforced  and whether  it matters  whether                                                                    
     you act now or next session or at all.                                                                                     
                                                                                                                                
     Of course,  Prudhoe Bay  is the  lynch pin  for getting                                                                    
     this gas  to market. And  so if  we look at  the annual                                                                    
     plans of development for the  main reservoir at Prudhoe                                                                    
     Bay  and what  is the  time frame  for DNR  raising any                                                                    
     issue about  whether that gas  should be  developed and                                                                    
     marketed  because   it's  reasonably   profitable,  the                                                                    
     lessees at  Prudhoe Bay will  not be obligated  to file                                                                    
     their  next proposed  plan of  development until  March                                                                    
     30, 2006 and  DNR will have until June 30  of next year                                                                    
     to act  on their proposed  plan of development.  And so                                                                    
     whether  you act  on this  matter today  or next  year,                                                                    
     that  will  not necessarily  change  how  DNR would  go                                                                    
     about enforcing  the obligation that already  exists in                                                                    
     the leases and unit agreements  - because a new plan of                                                                    
     development isn't  to be filed  with DNR until  the end                                                                    
     of March. And as I believe  was pointed out by at least                                                                    
     one  of  the senators  on  Monday,  it looks  like  the                                                                    
     obligation,  the duty,  is already  there and  so maybe                                                                    
     you never need to act  on this matter. But certainly it                                                                    
     is not time  critical and I don't mean  to suggest that                                                                    
     at the end of this session.                                                                                                
                                                                                                                                
4:40:23 PM                                                                                                                    
     Pt.  Thompson  -  a  little  bit  different.  The  next                                                                    
     proposed plan of development has  to be filed July 1 of                                                                    
     this year and DNR will  have until the end of September                                                                    
     to act  on that and decide  whether or not they  are in                                                                    
     compliance  with that.  DNR may  or may  not choose  to                                                                    
     raise the issue of the  duty to develop and market with                                                                    
     regard  to   Pt.  Thompson  in  this   year's  plan  of                                                                    
     development. Again,  Pt. Thompson  is important  to the                                                                    
     gas pipeline, but  Prudhoe gas is the  number one issue                                                                    
     there. Also, Pt.  Thompson, you have a  situation, as I                                                                    
     mentioned before,  where you've had leases  - some held                                                                    
     for  decades  -  and  there's been  no  development  or                                                                    
     production  there. So,  DNR may  choose to  take it  up                                                                    
     this year.  That would  certainly be  their prerogative                                                                    
     if that obligation already exists.                                                                                         
                                                                                                                                
4:41:22 PM                                                                                                                    
     In closing, I  would like to talk about  what options I                                                                    
     see available to this committee  today. I see one of my                                                                    
     jobs is to  provide you with different  options on ways                                                                    
     to  proceed  and  certainly there  are  four  that  are                                                                    
     immediately apparent.                                                                                                      
                                                                                                                                
     First, you could  act on the legislation as  is or with                                                                    
     some  revisions to  the  standard  on what  constitutes                                                                    
     'reasonably  profitable.' And  if you  think about  it,                                                                    
     what  you do  have then  in HB  71 is  a compliment  of                                                                    
     exploration  incentive  credits   in  which  the  state                                                                    
     undertakes some  of the risk of  exploration. It agrees                                                                    
     to effectively  cover the cost  of up to 40  percent of                                                                    
     the  cost  of  new  exploratory  wells.  So,  it  makes                                                                    
     exploration less risky  and yet the new  sections 1 and                                                                    
     2   of  this   bill  say   when  that   exploration  is                                                                    
     successful,  when you  have a  reservoir that  would be                                                                    
     reasonably profitable to develop,  we are affirming our                                                                    
     belief in your obligation to  go ahead and develop that                                                                    
     gas.                                                                                                                       
                                                                                                                                
     A  second  alternative  would be  drop  the  reasonably                                                                    
     profitable  standard  from  the  proposed  legislation,                                                                    
     keep  the exploration  incentive credits  and keep  the                                                                    
     seven-year  clock.  There  was  no  dispute  raised  on                                                                    
     Monday  about the  seven-year clock,  so that  would be                                                                    
     another alternative.                                                                                                       
                                                                                                                                
     How would  the seven-year clock then  work without this                                                                    
     definition  of  reasonably profitable  included?  Well,                                                                    
     the  way it  would  work is  if DNR  in  the course  of                                                                    
     enforcing  the preexisting  obligation  to develop  and                                                                    
     market  gas   found  that  there   was,  in   fact,  an                                                                    
     obligation to  do so at  this point in time,  you would                                                                    
     be  providing guidance  that you  expected to  see that                                                                    
     gas to market in a maximum of seven years.                                                                                 
                                                                                                                                
     The  third   alternative  would  be  to   separate  the                                                                    
     language  on  exploration  incentive  credits  and  the                                                                    
     reasonably profitable legislation  including the seven-                                                                    
     year  clock into  separate bills  with the  exploration                                                                    
     incentive  credits being  acted  on this  year and  the                                                                    
     reasonably profitable sections 1  and 2 considered next                                                                    
     year.                                                                                                                      
                                                                                                                                
     A  fourth alternative  would be  again to  separate the                                                                    
     exploration  incentive  credits   from  the  reasonably                                                                    
     profitable  legislation, act  on the  EIC's exploration                                                                    
     incentive credits  this year and simply  recognize that                                                                    
     there  already is  an existing  duty and  obligation to                                                                    
     develop  gas when  reasonably profitable  to do  so and                                                                    
     leave it to the administration  to enforce it under the                                                                    
     pre-existing standards  without any  further definition                                                                    
     and no  time clock,  but as  DNR or  the Administration                                                                    
     saw appropriate at the time  they saw appropriate. With                                                                    
     that, I'll conclude my remarks.                                                                                            
                                                                                                                                
4:44:23 PM                                                                                                                    
SENATOR SEEKINS asked if data from an exploratory well is made                                                                  
freely available to the state to be able to consider the                                                                        
commercial applicability of that field.                                                                                         
                                                                                                                                
MS. ROBSON replied that it depends on whether or not the well is                                                                
on state acreage.                                                                                                               
                                                                                                                                
     There are some requirements with  regard to oil and gas                                                                    
     wells drilled on state acreage  about data that must be                                                                    
     provided to  the state. There are  different rules that                                                                    
     apply  when it  is not  on state  acreage -  subject to                                                                    
     state oil and gas lease.                                                                                                   
                                                                                                                                
SENATOR SEEKINS said he heard there may be some Security                                                                        
Commission regulations on what kind of data can be released and                                                                 
when.                                                                                                                           
                                                                                                                                
4:45:44 PM                                                                                                                    
MS. ROBSON replied:                                                                                                             
                                                                                                                                
     There  are rules  with regard  to the  requirement that                                                                    
     well  data be  provided  to the  Department of  Natural                                                                    
     Resources when  the well is  on state leased  lands and                                                                    
     some of  that data,  I believe,  is released  after two                                                                    
     years, but, again,  I am not the best  person to answer                                                                    
     that question.                                                                                                             
                                                                                                                                
She offered to follow up on this question.                                                                                      
                                                                                                                                
4:47:08 PM                                                                                                                    
SENATOR ELTON reflected that Spencer  Hosie asserted a right that                                                               
was  reaffirmed through  the  adoption of  the  amendment on  the                                                               
floor. He asked  if the amendment ere taken out  and HB 71 passes                                                               
without it, has the Legislature  clouded the state's assertion of                                                               
that right.                                                                                                                     
                                                                                                                                
MS. ROBSON replied:                                                                                                             
                                                                                                                                
     There may be  a variety of ways in which  you could act                                                                    
     with regard to  HB 71 and I didn't mean  to suggest how                                                                    
     it  is   that  you   would  go  about   separating  the                                                                    
     exploration  credits  from  the  sections 1  and  2  on                                                                    
     reasonable profit.                                                                                                         
                                                                                                                                
SENATOR ELTON asked if one of  those mitigators could be a letter                                                               
of intent saying that removal of  the amendment does not mean the                                                               
state can't assert the rights.                                                                                                  
                                                                                                                                
MS. ROBSON  replied that Representative  Samuels would  know more                                                               
about that subject than she does.                                                                                               
                                                                                                                                
4:48:31 PM                                                                                                                    
SENATOR GUESS  asked if HB  71 is saying  the standard will  be a                                                               
simple  10-year average  and that's  the only  standard that  the                                                               
commissioner of  DNR can apply  regarding reasonability or  is it                                                               
just one standard of a number of standards that may be applied.                                                                 
                                                                                                                                
MS.  ROBSON  replied that  the  bill  requires that  the  10-year                                                               
average be applied.                                                                                                             
                                                                                                                                
     There  would  be discretion  as  to  what oil  and  gas                                                                    
     companies were  used in the sample  group of companies,                                                                    
     but  the 10-year  simple average  of return  on capital                                                                    
     employed  is, at  this stage,  non discretionary.  That                                                                    
     could certainly be changed.                                                                                                
                                                                                                                                
SENATOR GUESS  asked if  that is  the only  standard that  can be                                                               
used.                                                                                                                           
                                                                                                                                
MS. ROBSON answered:                                                                                                            
                                                                                                                                
     There  is  some  language  in section  1  on  findings,                                                                    
     subpart 13, that  talks about there may be  a number of                                                                    
     comparisons that would be appropriate  to make - to the                                                                    
     cost of  capital, to the  cost of equity, to  return on                                                                    
     capital employed  or to return  on equity. And  so, the                                                                    
     findings  language  indicates  that   there  may  be  a                                                                    
     variety  of   potentially  reasonable   standards.  The                                                                    
     section  2 language,  as it  currently reads,  does not                                                                    
     give  discretion  in  terms  of  choosing  a  different                                                                    
     standard.                                                                                                                  
                                                                                                                                
4:50:54 PM                                                                                                                    
REPRESENTATIVE RALPH SAMUELS said he wanted to give a brief                                                                     
snapshot of the thinking that went into the amendment to HB 71.                                                                 
                                                                                                                                
     I'm  not an  attorney and  I won't  apologize for  that                                                                    
     either. So,  I know  that you've  heard from  plenty of                                                                    
     industry lawyers and I know  that you've heard from Ms.                                                                    
     Robson  twice....  I was  in  and  out of  meetings  on                                                                    
     Monday  and  I  tried  to  listen in  to  some  of  the                                                                    
     testimony  and I  realize full  well what  the reaction                                                                    
     was going to be going into this.                                                                                           
                                                                                                                                
     I   did  catch   part   of  one   presentation  and   I                                                                    
     wholeheartedly  agreed with  a  lot of  what was  said.                                                                    
     Ken Conrad testified and he's  an executive with BP and                                                                    
     I have met  him several times over the past  year and I                                                                    
     have  a   lot  of  respect   for  Mr.  Konrad.   He  is                                                                    
     articulate, he  knows the oil  and gas  industry better                                                                    
     than I will  ever know the oil and gas  industry and he                                                                    
     has   some  very   good  points.   One   of  the   main                                                                    
     thrusts...was who  is going pay if  the state's numbers                                                                    
     are  wrong  and we  have  now  forced investors  to  do                                                                    
     something which  they know is  wrong and  they're going                                                                    
     to lose  money on. Who  is going  to make it  right? He                                                                    
     was a little  over the top on  the un-American comments                                                                    
     and this and that, but  all in all, that's an extremely                                                                    
     valid point. Who  would pay if our  numbers were wrong?                                                                    
     And   philosophically  speaking,   the  point   of  the                                                                    
     amendment and to get the  debate going is the fact that                                                                    
     it cuts both  ways. Who is going to pay  if the numbers                                                                    
     are right  and the project  is not developed?  The jobs                                                                    
     that are lost for Alaskans.  A lot people testified are                                                                    
     the  people that  want the  jobs  - the  jobs that  are                                                                    
     lost. The money to the state.                                                                                              
                                                                                                                                
     So, they're  both extremely valid points  and the point                                                                    
     of the amendment was to  make sure that both points are                                                                    
     up  for debate  before we  adjourn. I  hope in  my soul                                                                    
     that we come back here some  time this fall and we have                                                                    
     a  vote. And  I think  that to  push something  of this                                                                    
     magnitude off,  if you listen  to the  Hosie testimony,                                                                    
     whether you  agreed with  it or you  do not  agree with                                                                    
     it, if  it is  left hanging out  there, the  water will                                                                    
     get muddy at  the end when we can least  afford to have                                                                    
     muddy water on this entire project.                                                                                        
                                                                                                                                
     I think that  all of us as members,  all elected people                                                                    
     in this building  right now, 61 of  us, including Frank                                                                    
     Murkowski,  who's been  doing this  a whole  lot longer                                                                    
     than  all of  us  combined, will  never  have a  bigger                                                                    
     choice to  make than this  gas pipeline - 30,  40 years                                                                    
     worth  of  things,  grandchildren  -  a  legacy.  We're                                                                    
     fortunate to  be serving at  this time, but  along with                                                                    
     that   honor   of   serving   right   now   comes   the                                                                    
     responsibility to  know everything  that you  can about                                                                    
     every possible aspect of this  project - duties, rights                                                                    
     and  responsibilities,  both  of industry  and  of  the                                                                    
     state.  If we're  scared to  discuss it,  then I  think                                                                    
     that come fall  it's going to be  problematic. And that                                                                    
     was the  point behind amendment  1 - knowing  full well                                                                    
     what the  lawyers were going  to say and the  fact that                                                                    
     the water  was going  to get muddy  now and  I honestly                                                                    
     believe that  it was  better now  and I  felt it  was a                                                                    
     duty to do better now than it  was going to be to do it                                                                    
     later.                                                                                                                     
                                                                                                                                
     That being  said, Mr.  Chairman, I  also wholeheartedly                                                                    
     agree with the  original concept behind HB  71. I think                                                                    
     exploration tax  credits - quite frankly  they work. We                                                                    
     look  at  the  Nenana  Basin; we  look  at  the  Alaska                                                                    
     Peninsula where  I grew  up and  those folks  have come                                                                    
     around to  think that  it is probably  a good  thing to                                                                    
     try to open the door a little bit.                                                                                         
                                                                                                                                
     So, with that, as you  and I have discussed previously,                                                                    
     Mr.   Chairman,  I   wholeheartedly   agree  with   the                                                                    
     [indisc.].  I've got  a copy  of the  CS for  286 right                                                                    
     here.  To  take  the  tax   credits,  the  rather  non-                                                                    
     controversial  part of  this bill  -  it had  - on  the                                                                    
     House side I  believe 30 or 35 votes  supporting it. It                                                                    
     was  pretty  uncontroversial.  To  move  those  forward                                                                    
     under a different vehicle and  not move forward with HB                                                                    
     71,  I  think,   was  in  the  best   interest  of  the                                                                    
     Legislature and  the state at  this time. So,  that was                                                                    
     kind of the thinking behind it.                                                                                            
                                                                                                                                
4:56:08 PM                                                                                                                    
     And I'd like to add just  a couple of remarks here that                                                                    
     I'm  pretty troubled  by.  Those of  us  in the  public                                                                    
     life, you  end up getting  a pretty thick skin  and you                                                                    
     get it pretty  quick or you don't last.  It's as simple                                                                    
     as  that. But  I am  troubled by  some of  the personal                                                                    
     comments that have been made  about Amendment 1 towards                                                                    
     myself.  And not  a  lot, but  I wanted  to  go on  the                                                                    
     record  that   there  are  very  few   people  in  this                                                                    
     building,  and most  of them  are  probably sitting  in                                                                    
     this room right  behind me, that know more  about a gas                                                                    
     line than I do as far  as the process goes that are not                                                                    
     professionals at this.  And I would not  have done this                                                                    
     had  I not  thought  it  was in  the  best interest  of                                                                    
     moving  the gas  line forward.  So, with  that I  don't                                                                    
     know how  appropriate that comment  is, but I  did want                                                                    
     to get  it on the  record that  I thought that  some of                                                                    
     the comments  made were clearly inappropriate  and I've                                                                    
     got  as thick  a skin  as any  of the  rest of  you do.                                                                    
     So.... I appreciate you having this hearing.                                                                               
                                                                                                                                
4:57:34 PM                                                                                                                    
SENATOR SEEKINS asked if he had ever been able to sneak anything                                                                
through in the middle of the night in this building.                                                                            
                                                                                                                                
REPRESENTATIVE SAMUELS replied no and pointed out that he                                                                       
hearings were being held right now.                                                                                             
                                                                                                                                
     We have six or eight days  left. We wanted to make sure                                                                    
     we  had some  hearings  on this  subject  so that  that                                                                    
     Hosie  testimony  is not  just  hanging  out there  and                                                                    
     waiting until the fall. The  sharks are circling around                                                                    
     this project. It will get  attacked no matter what deal                                                                    
     is cut.  No matter who it  is cut with, it  is going to                                                                    
     get rocks thrown at it.                                                                                                    
                                                                                                                                
CHAIR WAGONER agreed that this is a work in progress. He thanked                                                                
Representative Samuels for his testimony and announced an at                                                                    
ease.                                                                                                                           
                                                                                                                                
4:59:16 PM At ease 4:59:53 PM                                                                                               
                                                                                                                                
           HB 286-VALUE OF ROYALTY ON GAS PRODUCTION                                                                        
                                                                                                                                
CHAIR WAGONER announced HB 286 to be up for consideration.                                                                      
                                                                                                                                
SARAH NEILSON, staff to Representative Samuels, explained that                                                                  
HB 286 is a housekeeping bill that was brought forward by                                                                       
Municipal  Light and  Power  (ML&P) that  used  to contract  with                                                               
Shell  and  then  bought  Shell's  interest  in  the  field.  The                                                               
Department  of  Natural  Resources   (DNR)  agreed  to  let  ML&P                                                               
continue to  receive the current  statute treatment based  on the                                                               
ML&P  Shell contract  even after  ML&P  bought Shell's  interest.                                                               
That  contract expires  at the  end of  this year  and this  bill                                                               
simply amends current statute by  adding language that allows DNR                                                               
to use  the gas transfer  price set by the  Regulatory Commission                                                               
of Alaska (RCA),  much like DNR uses the contract  price for gas.                                                               
The transfer  price is the  rate the  ML&P is required  to charge                                                               
itself  for  the  gas  that  it  uses.  The  proposed  change  is                                                               
consistent with  the purpose  of the original  law and  will help                                                               
insure that Anchorage electric consumers  have certainty in their                                                               
electric rates.                                                                                                                 
                                                                                                                                
5:01:38 PM                                                                                                                    
JIM POSEY, Municipal  Light and Power, supported HB  286. It will                                                               
make sure there  is a process for the RCA  to determine price and                                                               
it's a simple change.                                                                                                           
                                                                                                                                
5:02:31 PM                                                                                                                    
KATHY GIARD, Chair, Regulatory Commission of Alaska, explained:                                                                 
                                                                                                                                
     I have looked at this bill  and also have looked at our                                                                    
     recent orders that we issued  regarding the setting and                                                                    
     the  establishment  of  the  transfer  price.  And  the                                                                    
     process  that I  wanted  to talk  to  you about,  which                                                                    
     normally occurs  annually - ML&P  will come  before the                                                                    
     RCA and  will provide their proposed  transfer price to                                                                    
     us; we will evaluate it; we  will put it out for public                                                                    
     notice. If  the public  advocate, which  is represented                                                                    
     in the  Attorney General's  office, has  any questions,                                                                    
     they  will  come  in  and  look at  it.  We'll  hold  a                                                                    
     hearing. So,  there's a pretty good  public process for                                                                    
     this transfer  price to  be set. I  wanted to  come and                                                                    
     tell you that and give  you the confidence that I don't                                                                    
     believe the DNR will have  a challenge with the results                                                                    
     of the transfer price being  too low. I think that it's                                                                    
     calculated;  it's well  laid out  in an  order that  we                                                                    
     issued - U 97.35, which I can make available to you.                                                                       
                                                                                                                                
5:04:59 PM                                                                                                                    
SENATOR GUESS  moved to adopt  SCS HB 286(RES), version  F. There                                                               
were no objections and it was so ordered.                                                                                       
                                                                                                                                
MARY JACKSON,  staff to Senator  Wagoner, explained that  the SCS                                                               
to HB 286 now contains the  oil and gas exploration credits. Most                                                               
of the incentives  have already been before the  committee in the                                                               
form  of SB  53,  but  there are  some  changes.  It extends  the                                                               
exploration  credits adopted  in 2003  to every  place in  Alaska                                                               
south of  the Brooks Range through  2010. The reason is  that the                                                               
Nenana Basin,  Red Dog, Healy  and finally Cook Inlet  were added                                                               
and so the  issue was that as  each one was added,  the title got                                                               
larger and there finally came a  point where they said let's just                                                               
make it "south of."                                                                                                             
                                                                                                                                
Cook Inlet  is still  in the  title, however,  and the  reason is                                                               
because there  are specific  standards for  Cook Inlet  and those                                                               
were  talked about  before this  committee  in SB  163. The  Cook                                                               
Inlet standards were within three  miles and 10 miles rather than                                                               
outside of three miles and outside of 25 miles.                                                                                 
                                                                                                                                
The credits in this bill are  different than the HB 71 credits in                                                               
three  other areas.  One clarifies  a situation  that arose  with                                                               
exploration  credits  that  were  passed  in.  A  regulation  was                                                               
adopted and there  was some confusion about where  and when those                                                               
credits applied.                                                                                                                
                                                                                                                                
     This bill  says exploration  credits from  the original                                                                    
     piece of  legislation are  effective through  2007, but                                                                    
     exploration  credits that  will  be  effective in  this                                                                    
     piece   of   legislation   are  under   the   different                                                                    
     standards....                                                                                                              
                                                                                                                                
     The  intent  of  the  Legislature  was  that  this  was                                                                    
     exploration incentive  credits. It  was not  the intent                                                                    
     of  the  Legislature  that these  credits  be  extended                                                                    
     forever, a,  and, b, that  it only be  for exploration.                                                                    
     It   was  not   intended  that   they  be   for,  like,                                                                    
     delineation wells, as  an example....That clarification                                                                    
     is one that  has been agreed to by  both the Department                                                                    
     of Natural Resources and the Department of Revenue.                                                                        
                                                                                                                                
     The other thing that we've  done is HB 71 excluded ANWR                                                                    
     (Arctic  National Wildlife  Refuge).  ANWR  was in  the                                                                    
     original  exploration  credits  that  are  still  going                                                                    
     through to  2007. So, this  bill deletes  the provision                                                                    
     that  deleted ANWR.  So, ANWR  is  still in  as it  was                                                                    
     always in.                                                                                                                 
                                                                                                                                
     It's important  to recognize that those  credits expire                                                                    
     in two  years - the  original credits - and  that there                                                                    
     is at least one company  that has stepped to the plate,                                                                    
     so to speak,  and is undergoing some work  on the slope                                                                    
     in anticipation  of ANWR and  were prepared to  use the                                                                    
     credits.  The credits  were extended;  this bill  keeps                                                                    
     them in ANWR.                                                                                                              
                                                                                                                                
5:09:11 PM                                                                                                                    
     The other thing  that this HB 286 does is  that it does                                                                    
     delete sections 1  and 2 of HB 71 that  was in front of                                                                    
     you. Now sections 1 and  2 are, of course, the sections                                                                    
     that referenced  the findings and determined  the seven                                                                    
     years and the  rate of return that Ms.  Robson spoke to                                                                    
     previously. It's  important to  note [that]  that House                                                                    
     bill is still in the possession of this committee.                                                                         
                                                                                                                                
5:10:21 PM                                                                                                                    
SENATOR ELTON  asked if  this means that  ANWR is  eligible until                                                               
2007 or another date.                                                                                                           
                                                                                                                                
MS. JACKSON answered  that ANWR is eligible until 2007  as it was                                                               
eligible in the original legislation.                                                                                           
                                                                                                                                
CHAIR  WAGONER  expressed  that   was  always  the  purpose.  The                                                               
Governor has  always said  this is  to do  two things  - increase                                                               
exploration and  fill up the  pipeline with oil and  create jobs.                                                               
It was misunderstood, because it also  applied at the time to the                                                               
National Petroleum Reserve  - Alaska (NPR-A) -  even though those                                                               
were federal lands.                                                                                                             
                                                                                                                                
5:11:41 PM                                                                                                                    
SENATOR GUESS  asked Ms. Jackson  to comment on credits  in Healy                                                               
and Red Dog.                                                                                                                    
                                                                                                                                
5:12:13 PM At ease 5:15:01 PM                                                                                               
MS. JACKSON replied  that she had just passed  out information on                                                               
the  Usibelli  Coal  Mine,  which  is in  the  Healy  Basin,  and                                                               
information on the  Red Dog Mine. Both entities  had an interest.                                                               
The  discussion for  these is  similar to  those other  regions -                                                               
they  had an  interest and  let's  do what  we can  to get  these                                                               
explorers going and offer them the credits as well.                                                                             
                                                                                                                                
SENATOR GUESS asked  if the purpose is first  for gas development                                                               
for the Red Dog Mine or gas development for the region.                                                                         
                                                                                                                                
MS. JACKSON replied  that she didn't want to  speak for industry,                                                               
but understood it to be for both.                                                                                               
                                                                                                                                
SENATOR GUESS asked  if the state would have its  same portion of                                                               
royalty gas  in those situations  so if  the state wanted  to use                                                               
the gas it could, even if the Red Dog decided not to.                                                                           
                                                                                                                                
CHAIR WAGONER replied  that depends on whose gas it  is and whose                                                               
land it's  on. If  it's on  state land, yes;  if it's  on private                                                               
land, no.                                                                                                                       
                                                                                                                                
5:18:50 PM                                                                                                                    
SENATOR  GUESS said  she supported  the  tax credits,  but was  a                                                               
little worried  at the breadth  of language  on page 3,  lines 22                                                               
through 23. She said she  was comfortable with Nenana, Healy, Red                                                               
Dog and Cook Inlet, but asked  if anything else falls under this,                                                               
like coalbed methane.                                                                                                           
                                                                                                                                
MS. JACKSON replied no. She has  asked if there might be anything                                                               
in Southeast and  the answer was that there might  be in some old                                                               
wells that were  drilled off of Yakutat. "The whole  point of the                                                               
legislation is to try to get things going - to develop."                                                                        
                                                                                                                                
5:20:23 PM                                                                                                                    
SENATOR GUESS  said the  current SCS  has an  immediate effective                                                               
date and  SB 53 had  a contingency  effective date and  the other                                                               
bill had  a no effective date.  She asked if the  effective dates                                                               
in the SCS CSHB 286(RES) were all correct.                                                                                      
                                                                                                                                
MS. JACKSON replied yes. She explained  that the reason it has an                                                               
immediate effective  date is because  the original HB 286  had an                                                               
immediate effective date.                                                                                                       
                                                                                                                                
SENATOR GUESS  wanted to make  sure a contingency  effective date                                                               
wasn't needed, because HB 53 had one.                                                                                           
                                                                                                                                
MS. JACKSON reassured her that it wasn't needed in this bill.                                                                   
                                                                                                                                
5:21:28 PM                                                                                                                    
SENATOR SEEKINS  moved to  pass SCS  HB 286(RES)  with individual                                                               
recommendations  and  the attached  fiscal  note.  There were  no                                                               
objections and it was so ordered.                                                                                               
                                                                                                                                
CHAIR WAGONER adjourned the meeting at 5:22:55 PM.                                                                            

Document Name Date/Time Subjects