HOUSE BILL NO. 250 "An Act establishing a North Slope Gas Commercialization Team to develop recommendations regarding a North Slope gas project; and providing for an effective date." REPRESENTATIVE MARK HODGINS testified in support of CSHB 250 (O&G). He observed that HB 250 was introduced by the Governor. He discussed changes made by the committee substitute. He noted that the North Slope Gas Commercialization Team (team) was consolidated. He explained that the "confidentiality" provision was retained in the bill at the advise of legislative legal counsel. He noted that the team was reduced to three members. The team would be comprised of the commissioner of the Department of Natural Resources, the commissioner of the Department of Revenue and the Attorney General. He stated that this change would allow the fiscal note to be reduced. He recommended that the fiscal note be reduced to zero. He observed that the Governor has a contingency fund of approximately $400 thousand dollars. He stressed that a zero fiscal note would facilitate passage of the legislation. He acknowledged that there would be some contractual and travel needs. He emphasized that the North Slope natural gas project is not deemed to be economical under current circumstances. He stressed that the team would consider what state and local governments can do to alleviate taxes and make the project economical. Representative Davies asked what form tax relief would take. 2 Representative Hodgins observed that the North Slope gas project is an enormous undertaking. He noted that there would be a ramp up period. He stressed that a tax lessening at the front end could help the project. He emphasized that if the project is not economical it will not happen. He stressed that the project represents $150 billion dollars in revenues. Federal revenues would be approximately $26 billion dollars. He noted that the message must be sent to the federal government that there will be no federal revenues if the project does not go forward. Representative Davies expressed concern that all of the taxes and royalties could be eliminated without making the project economical. Representative Hodgins responded that the team will identify the level of taxation needed for the project to be profitable. He asserted that no one wants to be involved in the project unless there is going to be a profit. Co-Chair Therriault observed that the project will be subject to legislative approval. Representative Hodgins noted that the House Oil and Gas Committee will meet during the interim. He stressed that the Committee will provide a public forum for discussions. WILSON CONDON, COMMISSIONER, DEPARTMENT OF REVENUE spoke in support of the legislation. He noted that the team will look at what is needed to take North Slope natural gas to Asian markets. The legislation addresses how the Public Records Act and the Public Meetings Act will govern the operations of the team. Commissioner Condon discussed the Department of Revenue's fiscal note. He stated that the fiscal note contains $75 thousand dollars in the contractual line for continuation of a contract with Dr. van Meurs. Dr. van Meurs will work with the Administration and Legislature. There is an additional $75 thousand dollars in the contractual line for a socioeconomic study. He emphasized that the study will help the Legislature to judge if fiscal terms should be modified. The fiscal note also includes $50 thousand dollars for the continuation of a temporary position in the Department of Revenue. He observed that the position is currently working on the project full-time. He stated that funding is necessary for travel between Anchorage and Juneau. Commissioner Condon stressed that the federal government can have a large influence on the economics of the project. He maintained that, if the project is not built in Alaska, the market will be supplied by a project outside of the United States. He added that there will be some travel costs to 3 Washington D.C. Representative Davies observed that page 5, lines 12 - 24 was deleted from HB 250. This language addressed the State's participation in a North Slope gas project and further actions needed to ascertain or alleviate the anticipated socioeconomic impacts of the project. Commissioner Condon reiterated the importance of a socioeconomic study. He stressed that the study will help with legislative decisions regarding the project. He recommended that State participation not be proposed. He stated that any proposals should be analyzed to determine its value to the State of Alaska. PAUL FUHS, YUKON PACIFIC testified in support of CSHB 250 (O&G). He discussed subsection (10) on page two. He observed that this section expresses the intent that negotiations take place with all potential project sponsors, with the goal that a contract be signed with the project sponsor group. Mr. Fuhs stressed that the project must be backed by long- term gas sales. He emphasized the difficulty of obtaining contracts or financing if there is an unstable tax climate. He disagreed with the statement that the project would not be economical even if all of the State's taxes were given away. He stated that an analysis, by Credit Swiss First Boston, showed positive economics for the project. He maintained that the goal is for a unified proposal to be made to the Asian markets. He stated that permits, participation of producers, and state and federal fiscal terms are needed to assess the economics. He observed that the analysis differed in their estimations of how quickly full production is achieved. He stated that they anticipate placing 5 to 6 million tons the first year and 2 - 3 million tons every additional year. He argued that the project is in the "ball park". He maintained that the Asian markets are patiently waiting for a proposal from Alaska. GREGG ERICKSON, ECONOMIC CONSULTANT, ERICKSON ASSOCIATES, JUNEAU spoke in regards to the public information provisions in the bill. He maintained that provisions of public access will hurt the prospects of the project and are bad public policy. He referred to page 4, line 14. He noted that the provision states that the North Slope Gas Commercialization Team is not a governmental body for the purposes of the Open Meetings Act. The legislation also provides that the Public Records Act does not apply to documents that contain sensitive, proprietary, or privileged information. He stressed that the determination of "sensitive" is up to the administrative decision maker. He noted that all of the material could be kept secretive forever. He maintained 4 that there is no reason for the secrecy. He observed that the team has been functioning for a year and that he has already obtained documents from the Department of Revenue. He stated that the Department of Revenue and the Attorney General have produced 95 percent of the documents that he has requested. He acknowledged that some documents were withheld on the grounds that they contained proprietary and privileged information. He observed that he did not appeal the decision to withhold these documents. Mr. Erickson noted that the Attorney General advised him that the team is not covered by the Open Meetings Act. He emphasized that the Governor did not request provisions regarding the Open Meeting Act or Public Records Act. He stressed that these provisions are not needed to put into statute practices that have already been going on. He maintained that these provisions represent change to a long standing public policy that includes the public. He maintained that public participation is an important part of doing governmental business. He stated that gas sales could be the dominate public policy issue of the next decade. He stressed that it is not an "auspicious start for the process, of getting a gas pipeline built, ...to have the public cut out of the beginning of the process." He observed that there was discussion in the 1970's regarding the "deal" between the State and oil companies. He stressed that if the Administration has the ability to selectively decided what documents are available to the public and the legislature, that the public will question legislative decisions. In response to a question by Representative Davies, Mr. Erickson did not dispute that meetings between the commissioners and a third party are not under the Open Meetings Act. He clarified that his concerns are in regards to documentation. He added that provisions relating to the Open Meetings Act are unnecessary. He stated that draft documents are part of the public record. In response to a question by Representative Davis, Mr. Erickson stated that documents have already been submitted to the team by oil companies involved in the project. He stated that Commissioner Condon indicated that these documents contained market projections. He noted that documents containing commercial information can be kept confidential. He clarified that he is more concerned with provisions relating to the Public Records Act. He emphasized that "sensitive" could be interpreted as something that is embarrassing. Co-Chair Therriault stated that objections by detractors 5 could result in industry withholding information to the detriment of the project. Mr. Erickson stressed that discussions have been going on for a year without litigation. He maintained that "if it is not broken don't fix it". He acknowledged that litigation could be brought forth. He emphasized that under current practices it would be difficult to substantiate accusations of a secret conspiracy to give away the tax resource. He stressed that it would be difficult to charge the Administration of withholding information. He observed that future legislatures cannot be bound. He added that the State's taxing power or its sovereignty cannot be given away. He maintained that the result would be a contract that has no legal authority, but which has moral authority. (Tape Change, HFC 97-115, Side 2) In response to a question by Representative Davies, Mr. Erickson acknowledged that there will be a public process before anything becomes law. He stressed that the Legislature does not stand any different than the public in regards to access. Representative Davies noted that legislators may view oil and gas tax records in confidentially. Mr. Erickson noted that there are no statutes that would parallel these provisions in regards to the gas project. He observed that if legislators view documents in confidentiality they could not talk about what they discover. Representative Hodgins noted that the legislation speaks to the definition of proprietary interests. He provided members with a memorandum from Jack Chenoweth, Legislative Counsel, dated 4/18/97 (copy on file). He stated that the legislation allows negotiations of sensitive material in a private setting before a proposal is made to the Legislature. He observed that the Legislature is the public forum. Representative Davies questioned why it is necessary to include the Public Meetings Act provisions in the legislation. Representative Hodgins observed that Legal Services indicated that the provisions on confidentiality need to be included. Representative Davies observed that confidentiality pertains more to the records than to meetings. Representative Davies expressed concern that the legislation extends to notice of a meeting that would not prejudice confidential information. He observed that the principle of 6 the Open Meetings Act is that the public can follow the deliberations or reasoning of a body. Representative Hodgins stressed that if a commissioner is meeting with agents of the project that they are probably exempt from any public records. Written material would be part of the public record. He emphasized that the three major resource holders on the North Slope would provide proprietary information they do not wish to be available on a public forum. Representative Davies clarified that he is referring to the remaining intermediate documents that may be created. He asked if it is the intent that documents, that are not proprietary, be held confidential. Representative Hodgins stated that it is the intent that the document that is produced would come before the Legislature. TAMAR DI FRANCO, SPECIAL ASSISTANT, DEPARTMENT OF REVENUE explained that there was a joint federal/state working group on the 1979 Beaufort Sea lease sale. She observed that the group was doing work that is very similar to what the team will be doing. The Alaska Supreme Court ruled that the 1979 Beaufort Sea working group should have noticed their meetings. Co-Chair Therriault observed that the notice requirements could be problematic. Ms. di Franco noted that it has been the Department's position to release as many documents as possible. She indicated that the Department of Revenue would continue to release documents that are not sensitive in nature. She maintained that the Department will continue to be as open as they are able to, per agreements with negotiating parties. Representative Martin expressed concern with the delegation of authority to a "secret team". Co-Chair Therriault pointed out that the Legislature will participate in decision making. Representative Grussendorf observed that the commissioner of the Department of Labor would not be included on the team. He emphasized the role that the commissioner of the Department of Labor could play in relation to Alaska hire and Alaskan businesses. He asked why the commissioners of the Department of Labor and the Department of Commerce and Economic Development were dropped off. Representative Hodgins explained that, due to time constraints, the Committee decided to focus on tax issues. He noted that Commissioner Condon's testimony indicated that the other commissioners would be involved in an ex officio 7 manner. He emphasized the intent to keep the team small. Co-Chair Therriault observed that the reduction of size influenced the reduction of the fiscal note. He stressed that the Legislature can address local hire issues. Representative Grussendorf referred to the fiscal note. He did not think that the fiscal note should be zero. Co-Chair Therriault reiterated that the intent is to use the Governor's contingency fund. Representative Martin asked why the team was declared a non- governmental body. Representative Hodgins emphasized that there were problems with codifying a task force. The legislation allows confidentiality. The team will produce a contract. The contract will be turned over to the Legislature for consideration. Representative Martin expressed concern that the Department of Law will be required to provide assistance to a non- governmental body. Representative Davies suggested the addition of language on page 4, line 20 after "working documents." He suggested "would reveal proprietary or privileged information that the potential sponsor requested be kept confidential" be added and "contain sensitive, proprietary, or privileged information and the potential sponsor requests that the records or working documents be kept confidential" be deleted. He explained that the potential sponsor would not be able to request that working documents be kept confidential. The Department of Revenue would decide the status of working documents. The potential sponsor would request that information they provide be kept confidential. Any working document that did not reveal sensitive information could be released. Ms. di Franco stated that the legislation as written allows the Department of Revenue to do what is intended by the proposed amendment. She stated that working documents that were summary documents or more broadly analytical of specific information would not be covered by the confidentiality provision. Representative Davies interpreted the language to mean a document that simply analyzes records that have been requested to be kept confidential, could be kept confidential. Representative Hodgins observed that the opinion by Legal Services would go against the proposed amendment. He observed that the definition of proprietary is included in 8 the legislation. He emphasized that there will be proprietary information in the course of negotiations. He maintained that the team could not negotiate with private entities if everything was going to be part of the public record. He assumed that the public will have the ability to receive information that is not sensitive. Representative Davies stated that he would like the legislation to clarify that only those documents that would reveal confidential information would be held confidential. Representative Hodgins observed that the lines that would be deleted by the proposed amendment give the person who brings forward the information the right to declare if the material is confidential. Co-Chair Therriault suggested that the language is clear that documents must contain sensitive, proprietary or privileged information to remain confidential. Representative Hodgins explained that the sponsor would be allowed to determine the nature of the material in their request for confidentiality. He noted that gas companies would have proprietary information they would not want to be public. Representative Davies did not move the amendment. He observed that the Department of Revenue's intent is to release information that is not proprietary. Co-Chair Therriault provided members with a zero House Finance Committee fiscal note for the Department of Revenue (copy on file). Representative Grussendorf expressed concern with the zero fiscal note. Representative Davies emphasized that the proposal may request that the Legislature change the fiscal terms of the State to the tune of millions of dollars a year. He stressed that an appropriate amount of money should be appropriated to ensure that the Legislature receives a good proposal that has been fully considered. He maintained that contingency funds are for unanticipated contingencies. Representative Foster MOVED to report CSHB 250 (O&G) out of Committee with individual recommendations. Representative Davies OBJECTED. A roll call vote was taken on the MOTION. IN FAVOR: Davis, Foster, Kelly, Kohring, Martin, Therriault OPPOSED: Grussendorf, Davies 9 Co-Chair Hanley and Representatives Moses and Mulder were absent for the vote. The MOTION PASSED (6-2). Co-Chair Therriault MOVED to adopt the House Finance Committee zero fiscal note. There being NO OBJECTION, it was so ordered. Representative Davies MOVED to Amend fiscal note of $150 thousand dollars in the contractual line. A roll call vote was taken on the MOTION. IN FAVOR: Grussendorf, Davies OPPOSED: Davis, Foster, Kelly, Kohring, Martin, Therriault Co-Chair Hanley and Representatives Moses and Mulder were absent for the vote. The MOTION FAILED (2-6). HB 250 was reported out of Committee with "no recommendation" and with a zero fiscal note by the House Finance Committee for the Department of Revenue. (Tape Change, HFC 97-116, Side 1)