SB 271-NATURAL GAS DEVEL AUTHORITY PROJECTS  CHAIR SCOTT OGAN announced SB 271 to be up for consideration. MR. HAROLD HEINZE, CEO, Alaska Natural Gas Development Authority (ANGDA), noted the current zero fiscal note. He informed the committee that to stay involved in the project, he had written a letter to the two different applicant groups under the Stranded Gas Act. He could live with a zero fiscal note for the present, but if ANGDA's involvement became serious in the future, it would need additional support. CHAIR OGAN asked if he had received a response to the letters. MR. HEINZE replied that he only wrote the letters last week and, therefore, it was a little early. SENATOR ELTON asked if he had any discussion with the Department of Revenue (DOR) on protocol when he wrote the letters. MR. HEINZE replied that since the last hearing, he had numerous discussions with Deputy Commissioner Porter on their relationship. He summarized the discussions saying that the Authority is prepared to work diligently as a major element of the team to assure that the stranded gas applications receive all the consideration possible. He wrote the letters because he wanted both applicants to understand that the authority had certain abilities that were very unique to it as a public corporation. SENATOR ELTON was concerned that the applicants know there is only one point of access to negotiate their contracts and he wanted it to be through the governor's negotiating team. MR. HEINZE responded that the Authority has nothing to do with the negotiations that will take place, but it does help the project move along to becoming a commercial reality. SENATOR ELTON continued to voice his concern that ANGDA express itself through the Department of Natural Resources (DNR) and the governor's negotiating team. CHAIR OGAN chimed in to say that ANGDA has nothing to do with the TransCanada pipeline project; its scope is Prudhoe Bay to Valdez. But, the Authority's tax-free status might be of interest to the applicants [the producers] and requiring it to review the state's involvement in the pipeline is important, because it uses more of a private sector approach. MR. HEINZE pledged: If it is the desire of the State of Alaska, as a matter of policy, that the Authority not look at the fact that we share the first 530 in common with moving gas from the North Slope down the highway or wherever it goes, if we're not supposed to look at that in a commercial way - we might combine our efforts with each of the sponsor groups - then, I think we need to know that. It is certainly the view of the Authority, and we have maintained this position throughout, we will work with any legitimate project sponsor in any way, shape or form...[END OF TAPE]. TAPE 04-9, SIDE B    SENATOR ELTON said he didn't know the tenor of the letters and asked if Mr. Heinze could send a copy to the chair. MR. HEINZE apologized that that hadn't been done and said he would. SENATOR ELTON expanded on his concern saying that DOR had the responsibility to share appropriate information with ANGDA and that ANGDA should share information with DNR, also. Letters that go out should be funneled through one place. MR. HEINZE offered to send copies of all his letters to the committee and to send them through whomever they direct him to send them through. MR. STEVEN PORTER, Deputy Commissioner, DOR, inserted that there is a single contact point for negotiations and both Exxon/ConocoPhillips/BP [the Producers] and MidAmerica know who they are negotiating with and how to distinguish between the Authority and negotiations with the state under the Stranded Gas Act. He affirmed that there are two applications under the Stranded Gas Act and that he intends to negotiate with them simultaneously. He used a truckers analogy to expand on his explanation. Basically, the State of Alaska is the owner of a field; the industry leased the field and produced a harvest. The harvest can go to market one of three ways. Industry can do it themselves; the state can buy its own trucking line and independents can bring the product to market. Often, a trunk line goes from L.A. to Chicago and the little cities in between don't get serviced unless the independents service them. He sees the Authority complementing the trunk line by focusing on in- state gas benefits (like spur lines to smaller communities). SENATOR ELTON took a line out of one of the letters to ConocoPhillips/BP and ExxonMobil [the Producers] that read: Your Beaufort Sea alternative route might become possible if North Slope gas was available to Alaskans as provided for in our project and we would also welcome the opportunity to discuss your cooperation toward that objective. He asked if that letter had been vetted by Mr. Porter, would that line have been in it. MR. PORTER answered that ANGDA reports through DOR and the governor's position has not changed on that issue. The primary goal [of the letter] is gas to market and in-state gas benefits. Mr. Heinze brought forward the secondary issue of the Beaufort Sea route as a future possibility and Senator Elton would have to ask him what his intent was. SENATOR ELTON said he didn't want anyone to suggest that the Beaufort Sea alternative route might become possible if North Slope gas was available to Alaskans. This sentence seems to him to illustrate why the administration should be speaking to the applicants with one voice. MR. PORTER retorted that the administration is speaking with one voice in its negotiations with the applicants. SENATOR ELTON insisted that his point is that another state entity is also speaking with one clear voice. "I want to make sure the clear voices are saying the same thing." CHAIR OGAN said Senator Elton's point is well taken and that he shared his concern with the language mentioning the Beaufort Sea route. He thought it sent mixed signals to the industry. MR. HEINZE vouched that the application filed by the producers clearly states that it is not route specific and proposes two routes. That is what he was responding to. ANGDA would share the first 530 miles of the first alternative, the highway route, and something there might be beneficial to both projects. The second alternative, the over-the-top route, is not abandoned in their application. SENATOR SEEKINS said he wasn't aware of anything in ANGDA that says their CEO cannot communicate however he wants to. CHAIR OGAN said he was correct and that it was a matter of judgment. SENATOR LINCOLN said the Legislature is expanding the responsibilities of the Authority and she is uncomfortable because she senses it does not have the complete blessing of the administration. The current fiscal note is zero through 2010 and the second paragraph says explicitly that to reduce duplication, the state will coordinate research on all gas pipeline options and provide ANGDA with any research it develops that may assist ANGDA in the fulfillment of its obligations. There may also be research that is appropriate for ANGDA to conduct and to provide that information to the State of Alaska. She cautioned: It doesn't sound to me that that coordination is there and when we're talking about the Authority taking on additional responsibilities of evaluation of opportunities for private sector involvement in the planning, development, construction, management and operations of the gas transmission pipeline project, I don't know how that can be a zero. And that report has to come back to us within a year, before January of '05 - that report including the new task we gave them has to be before us in less than a year and yet we still have a zero fiscal note.... I don't want the Authority coming back and saying we don't need more money because SB 271 gave us additional responsibilities to handle.... CHAIR OGAN compared SB 271 to, "...putting our bait in the water. We want to attract a strike." If companies express an interest, he'd get the checkbook out and write a check. However, they might not express interest and this won't do anything. He asked Mr. Heinze if that was a fair assessment. MR. HEINZE replied that he has looked at the Authority's ability under several different scenarios and the supplemental request of $2.5 million will allow it to pursue any of the projects. However, he doesn't have a good sense of how long the state will pursue the stranded gas application process and said: I'm happy at this point to leave it at a zero fiscal note. I do not believe I could probably promise Senator Lincoln that under all circumstances I wouldn't need additional funding.... SENATOR LINCOLN said he was assuming that the Authority's $2.5 million request would be fully funded. If it isn't, she suggested that he rethink his reply in regards to SB 271. MR. HEINZE replied that if the funding situation changed substantially, he would have to rethink the whole relevance of the Authority and what SB 271 was asking ANGDA to do. CHAIR OGAN said that SB 271 goes to Finance next and he hoped to get it there so it could be considered along with the bill requesting the supplemental funding. MR. PORTER enlightened the committee with his explanation of the indeterminate fiscal note saying that the key is to assume the present law is fully funded and go from there. Some information may become available to ANGDA in such a way that may save money on the original plan; it could easily be a wash. "We do not believe this will incrementally cost the state additional funds at this present time." CHAIR OGAN asked if he thought this was an important tool to have - that may or may not work for this project. MR. PORTER replied with a question. If proposition 3 didn't exist and the Legislature decided to create an entity, what responsibilities would it give it over Alaska gas? He thought evaluating the TransCanada pipeline and how it complements their mission was a fair use of ANGDA's time and he recommended broadening their responsibility to include it. SENATOR SEEKINS said proposition 3 passed because of frustration over the lack of action and he encouraged every entity, including ANGDA, to try to help the state and the Legislature find ways to get the gas to market as economically and quickly as possible. SENATOR ELTON noted that the title of SB 271 gives ANGDA authority to evaluate opportunities for private sector involvement in the project, but page 2, line 13, says: (C) to authorize as part of the Authority's development planning, evaluation of opportunities for private sector involvement in the planning, development, construction, management, and operation of the project. He asked if this authority gives ANGDA a seat at the table as the state evaluates the MidAmerica application that envisions private sector involvement. CHAIR OGAN pointed out that he was reading intent language. SENATOR ELTON maintained that the lines he referenced "authorized" ANGDA's participation in evaluation of private sector involvement. He rephrased his question and asked if Mr. Porter took this as a legislative directive to have ANGDA involved at the table in the review of the MidAmerica application. MR. PORTER answered no. MR. HEINZE further answered: I felt that language was an instruction to the Authority that we should include in any of our thinking ways that private individuals and other investors, frankly, could become involved in the project if they wished in whatever we did. CHAIR OGAN said he didn't have any problem with taking the intent language out. MR. PORTER expanded his answer saying it is not the intent to have ANGDA sit at the table with the state in negotiating with MidAmerica. However, he felt that both the state and the Authority are committed to in-state gas benefits from local hire and contracting, including participation in ownership of the pipeline. MR.HEINZE said he found the language in SB 271 helpful because it added consideration of a special offering to Alaskans to whatever ANGDA developed in the way of a funding plan. SENATOR DYSON echoed Senator Seekins' comment about voter frustration and wanting to see things move. He has respect for Mr. Heinze and hears him saying ANGDA wants to be very useful in collecting needed information to make informed decisions. Expanding its ability to look at the possibility of a shared portion of the pipeline is very useful. MR. ROBERT VALDATTA, member of the Municipal Advisory Panel on Stranded Gas, Seward, supported SB 271, because it would put Alaskans to work. SENATOR WAGONER moved to pass SB 271 from committee with individual recommendations and attached fiscal note. SENATOR ELTON objected saying, while he intends to vote for passage of SB 271 and supports the $2.5 million request so the state can have every tool it needs: We have to carefully parse, kind of, the testimony from the department whether they are supportive of $2.5 million or how does this work with ANGDA. And, while I agree that all the tools ought to be there, we ought to have a good understanding of who is using the tools and what the tools are meant to accomplish. And, I'm not quite there, yet. So, I think that puts a little bit of responsibility on the Department of Revenue and on ANGDA to develop those protocols so that we understand and we're comfortable with the process - because I do believe that we are at a very delicate stage right now. I don't want the left hand not knowing what the right hand is doing as potential contracts that are going to be presented to the whole body, hopefully in a timely manner, come up.... I'm going to be a no-rec on the bill. I think it's important to move it forward so that we can keep some momentum behind this.... It would sure be helpful if we knew what those protocols were before we finally vote. CHAIR OGAN responded that his points are well taken. He has been told that the state often sends a very mixed, and somewhat dysfunctional, message to the market. SENATOR ELTON removed his objection. CHAIR OGAN announced that SB 271 passed from committee. There being no further business to come before the committee, he adjourned the meeting at 5:05 p.m.